Major changes needed to get rid of unfair contract terms

31 August 2018

ACCC Chair Rod Sims addressed the Council of Small Business Organisations Australia (COSBOA) National Small Business Summit 2018 today regarding business-to-business unfair contract terms in standard form contracts, advocating there is a strong case to both strengthen the law and introduce penalties for breaking it.

“The business-to-business unfair contract term law is an extremely valuable law that works to protect small businesses against terms that just should not be found in contracts. However it does not go far enough, and its limitations really tie our hands as a regulator,” said Mr Sims.

The Australian Consumer Law currently allows a potentially unfair contract term to be challenged in a court so it can be declared void, but it does not prohibit such a term being included in a contract in the first place.

Companies can include potential unfair contract terms in their contracts and when, and only when, challenged by the ACCC, can companies remove them from their standard contracts. There is little the ACCC can do to hold them to account for prior conduct. Neither can the ACCC issue infringement notices for unfair contract terms.

“The regime has two significant flaws: first, unfair contract terms are not illegal, and second the ACCC cannot seek penalties when the court has declared an unfair contract term void, nor can we issue infringement notices for contract terms that are likely to be unfair.”

“The law simply isn’t strong enough. Unfair contract terms should be illegal. As it stands, no real incentive exists for businesses to ensure their standard contracts do not contain such terms, which really means they have incentive to include them and see if they can get away with it.

This is out of step with other provisions in the Competition and Consumer Act 2010, and Australian small businesses are the ones paying the price,” Mr Sims said.

The full transcript of the speech is available here.

Release number: 
MR173/18
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