Unfair contract terms

The unfair contract terms regime contained in the Australian Consumer Law (ACL) as it applies to small business contracts has now been in force for over a year. It is important for all businesses dealing with small business to ensure that their terms are drafted correctly as terms found to be unfair under s 24 of the ACL terms are void and unenforceable. Some recent terms, which have been the subject of proceedings by the ACCC, include:[1]

1. automatic renewals unless the customer cancels the contract within a certain time frame;
2. unilateral increases to prices and unilateral alterations of terms;
3. imposition of liability regardless of whether the customer was at fault;
4. very wide or unlimited indemnities that do not consider how the damage arose, and whether the supplier could or should have avoided or mitigated its losses;
5. rights granting only one party the right to terminate the agreement or where the other party’s rights to terminate are limited; and
6. combinations of unfair terms such as automatic renewals together with the ability to unilaterally raise prices after the renewed term has been locked in and unilateral termination of the contract (with a unilateral discretion as to whether there has been a breach of the contract) followed by the imposition of penalty like consequences on the customer.[2]

In determining whether a term is unfair a court must consider the contract as a whole and whether the term is transparent. For a term to be transparent it needs to be in reasonably plain english, legible and clearly presented. Of particular relevance to most terms and conditions in use today, ACCC v JJ Richards & Sons Pty Ltd[3] provides guidance that terms are unlikely to be transparent were those terms are amongst other factors densely packed on a page of small print, are not written in plain English and are not presented in a way which brings them to the attention of the customer.

Businesses regularly engaged by small businesses to provide goods or services should ensure that their contracts do not contain unfair contractual terms, that terms are clearly presented in reasonably plain English and are legible, and that notice is given to their customers of clauses which potentially favour only one party.

If you need your contracts reviewed for potential unfair terms please contact us.

[1] ACCC v Bytecard Pty Ltd Federal Court Proceedings VID301/2013, 24 July 2013; Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited)

[2015] FCA 368; ACCC v Chrisco Hampers Australia Limited [2015] FCA 1204; Australian Competition and Consumer Commission (ACCC) v Get Qualified Australia Pty Ltd (In Liq) (No 2) [2017] FCA 709; ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224; and ACCC v CLA Trading Pty Ltd [2016] FCA 377 where the court considered the identical unfair contract terms provisions in the Australian Securities and Investments Commission Act 2001 (Cth).

[2] Whilst not yet decided Australian Competition And Consumer Commission V Servcorp Limited ACN 089 222 506 & Ors Federal Court Proceedings NSD1610/2017, the media release by the ACCC noting its reasons for commencing the action can be read here

[3] [2017] FCA 1224 following similar comments in ACCC v Chrisco Hampers Australia Limited [2015] FCA 1204.

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