Unfair Contract Terms. Are you Compliant? If not, is it worth $50m?
Unfair Contract Terms. Are you Compliant? If not, is it worth $50m?

In 2016 the Australian government introduced a new law to protect small business from unfair terms in business-to-business standard form contracts. The law prohibited unfair terms and deemed them to be void and unenforceable. You can read about it in our previous article

On 9 November 2023 changes will come into effect in relation to those laws. We wrote about them in our article. It is worthwhile repeating them and bringing you up to date - particularly if you have not undertaken a review of your terms and conditions.

What are the changes?

Who the unfair contract terms regime applies to:

It will apply to a small business contract if one party to the contract is a business that employs less than 100 people (FTE) or has a turnover of less than $10 million.

What are the new penalties:

If you enter a new contract (or change an old contract) after 9 November 2023 and a term is found to be unfair; the following penalties may apply:

$50 million for a company; or ‘3 times the benefit received or 30% of turnover in the 12 months prior to the breach.

$2.5 Million for an individual

What are the court powers:

The court can:

  • Void the clause
  • Prohibit the clause (or similar clause) being used again
  • Issue an injunction
  • Impose a penalty

Standard Form Contract:

A court can determine if a contract is a standard form contract even if:

  • The other party could negotiate minor or substantial terms.
  • The other party can select from a few options within the contract

Remember that according to the ACCC, at a very high level, contract terms are unfair if they:

  • Cause a significant imbalance in the rights and obligations of the parties under the contract.
  • Are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term, and
  • Would cause financial or other harm to the other party if enforced.

In deciding whether a term is unfair, a court can consider any matters it thinks relevant, but it must consider the contract as a whole and whether the term is transparent.

The law sets out examples of terms that may be unfair. These include terms that allow one party, but not the other to:

  • Avoid or limit their responsibilities under the contract.
  • End the contract.
  • Breaching the contract.
  • Change the terms of the contract.

Additionally, as previously stated both herein and in our earlier article, the following may be  deemed to be unfair:

  • Allowing the supplier to vary the price to be charged without agreement or consultation.
  • Providing for automatic renewal of the contract
  • Incorporating additional contractual terms through references to obscure and not easily accessible documents.
  •  Clauses that seek to limit liability for delays in performing the contract.
  •  Obligation on the customer to pay the supplier for the costs it incurs in exercising its rights under the contract (including legal costs where there is no corresponding right for the consumer).
  • Requiring an assurance of comprehension and acknowledgement of intricate clauses. A warranty by the customer that they have read all material, including obscure and not easily accessible documents.
  • Significant caps and reduction of supplier’s liability and removal of liability for consequential loss.
  •  Requiring the customer to provide a blanket indemnity in favour the supplier for loss and damage.
  • Requiring the customer to pay for services during periods of time where the supplier does not provide the services.
  • Reserving the right to unilaterally terminate the agreement, sans reciprocal privilege for the customer. Allowing the supplier to terminate the contract immediately without the same right for the customer.
  • obligation for a severance/balloon payments by the customer when terminated by the supplier.
  • Billing the other party despite the goods or services have not yet been provided.

It is important that you review your agreements to ensure that its terms are compliant with the legislation. If you require assistance with the review of your contracts, or to discuss these incoming changes, please do not hesitate to get in touch with Holman Webb Lawyers, Corporate and Commercial Group today.

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