Unfair Contract Terms
“Click here” and you may have just entered into a standard form contract to which the unfair contract terms (UCT) law in the Australian Consumer Law (ACL) apply.
The UTC provisions apply to business contracts where:-
- at least one party to the contract is a ‘small business’
- the contract is a ‘standard form contract’
- A term is ‘unfair’
When do the UCT laws apply?
In summary, from 10 November 2023:-
- A small business will be one which employs less than 100 people or has an annual turnover of less than $10 million;
- A standard form contract will be defined as one pre-prepared by the party which has all or most of the bargaining power, used on multiple occasions and where there is little scope to negotiate terms; and
- A clause may be presumed to be unfair if the same or a substantially similar term was found to be unfair in similar circumstances in a separate case.
There is no upfront price limitation and if a party basically has to “take it or leave it” it will be difficult to argue that it is not a standard form contract.
An unfair contract terms is one which
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract
- is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
- would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on.
The ACL sets out examples of terms that may be unfair, including:
- terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract
- terms that allow one party (but not the other) to end the contract
- terms that penalize one party (but not the other) for breaking or ending the contract
- terms that allow one party (but not the other) to change the terms of the contract.
Examples of unfair contract terms
Terms which could be considered unfair are ones which allow for:-
- Automatic renewal of the term of the agreement;
- one sided limitation of liability;
- unilateral variation of terms; and
- Unfair payment terms
The courts have found the following clauses to be unfair:-
- [The supplier] has the right to immediately vary all or some of the charges payable by the customer by notifying the customer.
- By signing and returning the contract to [the supplier],the customer irrevocably offers to acquire the software and services under the contract but [the supplier] is not bound by the contract until the customer has been advised in writing of [the supplier’s] unconditional acceptance of the contract or [the supplier] has commenced providing the support services, whichever occurs first.
- The customer states they have read each document forming part of the contract (including any document incorporated by reference and not provided to the customer) and has based its acquisition decision solely on their contents.
Of course, unfairness depends on context, but none the less, these are a useful guide.
Where a provision is incorporated by law – for example terms that apply to commercial leases – this will not be considered to be unfair. Nor will a clause that sets out the upfront price be considered to be unfair.
If a provision is found to be unfair monetary penalties can be imposed if a party seeks to rely on that clause.
Penalties for a company and an individual are different. For an individual there is a fine of up to $2.5 million. For a corporation, the greater of $50 million and three times the value of the benefit obtained.
The court also has other broad powers which include the ability to make such orders it considers appropriate to redress (in whole or in part) loss or damage that has been caused or to prevent or reduce loss or damage that is likely be caused, by the UCT, including to existing contracts that contain the same or similar terms.
For more information or assistance, you can contact the author Christine Jankus on 1300 729 113 or by email.