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Unfair contract terms

Under the Australian Consumer Law (ACL), certain standard form contracts cannot contain terms that:

  • cause a significant imbalance in the parties' rights and obligations, and
  • are not reasonably necessary to protect the legitimate interests of the party advantaged by the term, and
  • may cause financial or other detriment to the party if it were applied or relied upon.

A term is void if it is unfair. This means the term is treated as if it never existed.

Ultimately, only a court or tribunal (not the ACCC) can decide whether a particular term is unfair. If a party subsequently seeks to apply or rely on a term that has been declared unfair, it is a breach of the ACL and the court/tribunal may

  • make orders including to vary the contract or arrangement
  • refuse to enforce any or all of the terms of the contract, or
  • direct the party to refund money or property to the injured person.

This law applies to standard form 'consumer contracts' and standard form 'small business contracts' entered into or renewed on or after 12 November 2016.

A standard form contract will typically be one that has been prepared by one party to the contract and is not subject to negotiation between the parties – that is, it is offered on a 'take it or leave it' basis. An example of a common standard form contract is the type usually offered by telecommunications providers to customers – each customer of the particular telecommunications business will be given the same contract, and won't have the chance to negotiate individual terms.

While most standard form contracts and contractual terms will be covered by the unfair contract terms law, there are a number of exceptions. For example, certain insurance contracts (e.g. car insurance) will not be covered. The law also will not apply to terms that:

  • define the main subject matter of the contract
  • set the up-front price payable under the contract, or
  • are required, or expressly permitted, under law.

Determining whether a term is unfair

The law sets out examples of clauses in a contract that may be unfair, including terms that enable one party (but not the other) to:

  • vary the terms of the contract (e.g. change its prices or services at any time without prior notice)
  • automatically renew a contract without the other party’s express consent
  • avoid or limit their obligations under the contract (e.g. limit the contract provider’s liability where they have acted negligently)
  • terminate the contract
  • penalise the other party for breaching or terminating the contract.

When deciding whether a particular term is unfair, a court/tribunal may take into account any matter that it thinks is relevant. However, the court/tribunal must consider how transparent the term is and the fairness of the term must be assessed in light of the contract as a whole.

A lack of transparency in a particular term may indicate that there is a significant imbalance in the rights of the two parties to the contract. This, in combination with the other factors listed above, may indicate that the term is unfair. A term is considered to be transparent if it is:

  • expressed in reasonably plain language
  • legible
  • presented clearly
  • readily available to any party affected by the term.

However, a term that is transparent could still be found to be unfair.

Terms that may not be transparent include terms that are:

  • hidden in fine print or schedules, or
  • phrased in legal, complex or technical language.

What is a 'consumer contract'?

A consumer contract is a contract for the supply of goods or services or the sale or grant of an interest in land to an individual for personal, domestic or household use.

What is a 'small business contract'?

A small business contract is a contract:

  • where at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis), and
  • the upfront price payable under the contract is no more than $300 000 (or $1 million if the contract is for more than 12 months)
  • for the supply of goods or services or the sale or grant of an interest in land.