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Dealing With Unfair Contract Terms

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By Philip Colman, Principal and Louise Wolf, Senior Associate, MST Lawyers

Having just read an article about draft legislation to extend the unfair contract term regime to insurance contracts, I was reminded that laws relating to unfair contract terms in the Australian Consumer Law have been around since 2010 in respect of standard form consumer contracts and since November 2016 in respect of standard form small business contracts.

Despite these laws applying to standard form small business contracts for nearly 3 years, I am yet to come across a situation where my opponent has said “that term your client is relying on is unfair and should be set aside” or “that contract your client is relying upon is full of unfair terms and my client will report your client to the ACCC”

Maybe the small business contracts we prepare for our clients do not contain any unfair terms – that is certainly our goal, but you can never be sure what the ACCC or a Judge might think.

But it does emphasise the importance of the services that MST Lawyers offer.

  • Lawyers in our Corporate and Franchising team can:
  • Prepare standard form small business contracts or standard form consumer contracts that don’t offend these laws whilst still protecting your legitimate business interests; and
  • Amend your existing standard form contract templates so that they don’t offend these laws whilst still protecting your legitimate business interests
  • Lawyers in our Dispute Resolution and Litigation team can:
  • Seek to have unfair contract terms relied upon by your opponent declared void, often giving you a solid defence to claims made against you; and
  • Defend your position if an allegation is made (by an opponent or the ACCC) that your standard form contract contains unfair terms.

So, what are unfair contract terms?  A term is unfair if:

  • The term must cause a significant imbalance in the rights and obligations of the parties under the contract;
  • The term must not be reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  • The term must have the potential to cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

And, of course, at the moment, these laws only apply to standard form contracts (in the consumer and small business fields).  The law presumes all contracts are standard form unless the party seeking to rely on the contract proves otherwise.  A Court will take into account the following things in determining whether a contract is a standard form contract:

  • Whether one party has all or most of the bargaining power;
  • Whether the contract in question was pre-prepared;
  • Whether the contract was put to the other party on a take it or leave it basis;
  • Whether an effective opportunity to negotiate was given; and
  • Whether the contract terms take account of specific characteristics of a party or the subject matter of the transaction.

Consumer contracts are contracts for the supply of goods or services or the sale or grant of an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal domestic or household use or consumption.  Good examples are personal mobile phone contracts or airline tickets.

Small business contracts are contracts for the supply of goods or services or the sale or grant of an interest in land where:

  • one party has less than 20 employees; and
  • the upfront price under the contract does not exceed $300,000 (or $1,000,00 if the duration of the contract is more than 1 year).

Franchise agreements, leases, supply contracts, employment agency agreements, estate agent authorities and software agreements are examples of the types of contracts that can constitute small business contracts.

A recent case where these laws were applied was the feature of a recent ACCC press release.

And, as I have stated above, the Government looks like extending these laws to insurance contracts! This would apply to all types of insurance contracts whether for consumer or business purposes.  It would give any person considering purchasing insurance the opportunity to negotiate terms within their insurance contract, and it could force insurance companies to consider requests for amendments to potentially unfair contract terms.   If the draft legislation is passed into law, all new insurance contracts should be examined for potentially unfair terms.

Our lawyers are highly skilled in this area.  We advise large and small business and consumers and our goal is to deliver the best result in a competent, efficient and cost-effective manner.  We are happy to conduct no obligation initial “chats” about these types of matters.

If you have any questions about the content of this article or the issues raised by it, please feel free to contact Philip Colman or Louise Wolf by email or call +61 3 8540  0200.