Unfair contract terms under scrutiny

28 March 2017

The Australian Competition and Consumer Commission has a number of in-depth investigations underway across a range of industries following the introduction of the new business-to-business (B2B) unfair contract terms laws in November 2016.

Delivering the keynote address at a UNSW forum on recent developments in competition and consumer law, ACCC Deputy Chair Dr Michael Schaper said the regulator would be taking enforcement action in relation to a number of companies over B2B unfair contract terms this year.

“A number of investigations have been commenced, either in response to issues raised in the ACCC’s recent industry review or as a result of complaints made to the ACCC. Our enforcement teams are looking at a variety of contracts across a range of industries,” Dr Schaper said.

Since the laws were introduced in November, the ACCC has received 48 complaints from businesses about unfair contract terms.

In November 2016, the ACCC published a report Unfair terms in small business contracts, examining 46 standard form contracts across seven industries. Some traders removed or amended their terms after being contacted by the ACCC, but in some cases they didn’t.

The ACCC says a number of clauses it identified as being potentially unfair continue to be used in standard form contracts, including terms that allow the contract provider:

  • an unreasonable ability to cancel or end an agreement
  • potentially broad and unreasonable powers to protect themselves against loss or damage at the expense of small businesses, through the inclusion of broad indemnities or excessive limitations of liability
  • the ability to unilaterally change the terms of the contract
  • an unreasonable ability to limit or prevent small businesses from exiting their contracts

“We’re concerned many potentially unfair contract terms are still appearing in standard contracts. Businesses that seek to tip the scales too far in their favour at the expense of small businesses leave themselves open to court action by the ACCC,” Dr Shaper said.

The ACCC is also currently investigating complaints about payment terms and unfair commercial practices that have the effect of delaying payment times for suppliers.

“The potential for large businesses to unilaterally alter their payment terms and unfairly delay payment times for their suppliers is a significant concern to the ACCC, and may also raise issues of misleading or potentially unconscionable conduct,” Dr Schaper said.

“Ensuring small businesses receive protection under new unfair contract terms law is a priority for the ACCC in 2017.”

Background

The new business to business unfair contract laws apply to standard form contracts entered into or renewed on or after 12 November 2016. If a contract is varied on or after 12 November 2016, the law will apply to the varied terms.

Contracts covered include those between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than a year.

Standard form contracts provide little or no opportunity for the responding party to negotiate the terms – they are offered on a ‘take it or leave it’ basis.

The regulator for small business financial contracts, such as business loans from banks, is the Australian Securities and Investments Commission (ASIC), which is currently examining these issues.

The law sets out examples of contract terms that may be unfair, including:

  • terms that enable one party (but not another) to avoid or limit their obligations under the contract
  • terms that enable one party (but not another) to terminate the contract
  • terms that penalise one party (but not another) for breaching or terminating the contract
  • terms that enable one party (but not another) to vary the terms of the contract.

Only a court or tribunal (not the ACCC) can decide that a term is unfair. However, if a court or tribunal finds that a term is ‘unfair’, the term will be void – this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.

In the lead-up to the introduction of the new laws, the ACCC undertook a review of 46 standard form contracts across the advertising, retail leasing, franchising, independent contracting, telecommunications, waste management and agricultural industries.

These industries were selected based on the number of complaints received by the ACCC, the prevalence of standard form contracts in those industries and submissions to Treasury’s 2014 consultation process on Extending Unfair Contract Term Protections to Small Businesses.

Release number: 
MR 40/17
ACCC Infocentre: 

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