Reviewing Your Standard Agreements: Unfair Contract Terms
Written by: Gabrielle Anderson l Insight Team
Now that 2024 is well underway we wanted to focus on a legal update we covered at the end of last year, which may have been overlooked by our busy business clients in the crazy time that is the lead up to summer break!
We’re very sure that while taking in the sunshine and spending time with family, the very last thing our Canny business owners want to do is think about whether their standard terms and conditions are compliant with the latest consumer laws… That’s exactly why Canny Insight is here and ready to take on this important task for you!
If you want to learn more about Canny Insight, you can read all about it here, via this previous blog we put together: Welcome To The New Year + Insight
What Are Standard Form Contracts?
Put very simply – these include your business’ standard terms and conditions.
You might remember that our December 2023 article Unfair Contract Terms: What Do The New Laws Mean For You or Your Business provided an update on the new changes to the “Unfair Contract Laws”, or what is commonly referred to as the UCT (unfair contract term) laws. These are very important consumer laws that regulate standard form contracts, and so are relevant to all businesses that provide pre-written contracts to consumers repeatedly for particular services. Generally, these are referred to by businesses as their standard terms and conditions – they may be contained in your Service Agreement, your payment terms, your website terms, or in any other contract your business has with its customers or any other business.
However, it is important to note that the contract must be for the supply of goods and services, or the sale or grant of an interest in land.
As a standard form contract isn’t easily defined, you need to focus on whether the following factors apply to the contract:
- One party has all or most of the bargaining power in the transition;
- One party prepared the contract without or before any discussion between the parties before the transaction;
- One of the parties could effectively only either accept or reject the terms of the contract as presented and was not given any real opportunity to negotiate the terms of the contract. On this point, it is important to note that a contract may still be a standard form contract even if;
- (a) The other party has an opportunity to negotiate changes to the terms of the contract that are minor or insubstantial in effect; or
- (b) The other party was able to select a term from a range of options determined by the party that prepared the contract;
- Whether the terms of the contract take into account any specific features of the other party (or parties) to the transaction.
The November 2023 UCT reforms have made it clear that the scope for what is now considered a standard form contract is extremely broad. The reforms also confirm that even contracts that were negotiated by one consumer or small business and then subsequently issued to a broader group of consumers or small business, it might be considered a standard form contract.
As you can see, most standard terms and conditions are Service Agreements would satisfy the above and so would be considered a standard form contract subject to the UCT laws.
Want to know more about Service Agreements and their importance? Check out this previous blog we put together: Service Agreements
Why Have The Unfair Contract Terms Laws Been Brought In?
The terms of these standard form contracts aren’t usually agreed between the parties, and as you can see from the above criteria, the contract as a whole is offered by one party to the other on a “take it or leave it” basis. The Federal Government has recognised that such agreements might result in unfair conditions or obligations being placed on consumers or businesses that didn’t have the opportunity to negotiate the terms they’re subject to as soon as they enter into the transaction.
The UCT regime is therefore aimed at levelling up the obligations placed on both parties, and preventing consumers or small businesses from being placed at a disadvantage because they didn’t have as much input into the contract. The purpose of the new laws is to place the obligation on the businesses providing such terms and conditions and make it their responsibility to ensure that their standard form contracts do not contain any unfair terms.
What Exactly Is An Unfair Contract Term?
To be considered an unfair contract term, the following criteria will need to be met:
- Will the term(s) cause a significant imbalance in the rights and obligations of these parties under the contract;
- Are the terms(s) not reasonability necessary to protect the legitimate interests of the party who gets an advantage from the terms(s); and
- Would the terms(s) cause financial or other harm to the party if enforced.
Examples are terms that;
- Allow one party but not the other to avoid or limit their responsibilities under the contract;
- Permit on party but not the other to terminate the contract;
- Allow one party to vary the terms of contract, but not the other party;
- Act as a penalty when one party breaches the contract, particularly where there isn’t a corresponding penalty if the other party breaches the contract;
- Permit one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract, without a corresponding right for the other party if such variations occur; or
- Limit one party’s liability or rights to sue another party.
Whether or not a term is considered unfair can be quite nuanced and will depend on a range of factors. For example, a term may appear unfair on its own, but can be balanced with a corresponding right to the other party being provided elsewhere in the contract, which means that term is no longer considered unfair. It’s for this reason that having your standard agreements reviewed by Canny Insight is extremely important.
Frequently Asked Questions
“Does It Matter That I’m A Small Business Owner Entering Into A Contract With A Much Larger Business?”
While the UCT laws require that at least one of the parties to the contract is a small business, the definition of who qualifies as a small business was significantly broadened from November 2023 to a business:
- Employing fewer than 100 people; or
- With an annual turnover for the previous income year of less than $10,000,000.
“What can happen to my business if our standard contracts or terms and conditions contain Unfair Contract Terms?”
The main impact of the November 2023 UCT Laws is that now financial penalties are being enforced on partied who have unfair contract terms in their standard agreements.
This is a substantial change, as before the UCT amendments, anyone who was found to have unfair contract terms in the standard agreements would only be subject to having those terms deemed void and unenforceable. Hence many continues to use what would now be deemed unfair terms in the standard agreements because they would simply be determined void if challenged in court.
Which brings is back to why the UCT reforms are so important for our Canny businesses. Now if you have a standard agreement that is challenged by the other party and is found to have any unfair terms in it, you could be subject to the following financial penalties;
If you’re a company;
- $50 Million, or
- 3 X the value of any benefit derived from the unfair term, or
- 30% of the concerned company’s adjusted turnover during the relevant period.
If you’re an individual:
- Up to $2.5 Million
“But I’d only have to pay the penalty if a client or customer sued me, right?”
No. Businesses should be aware that it isn’t only through the courts that standard terms and conditions can be challenged. As a result of the November 2023 UCT reforms, the ACCC can now apply the penalties to businesses found to have breached the new UCT laws through the ACCC’s separate enforcement powers. And the ACCC has warned it is on the lookout for companies in breach, particularly as they recognise the impact unfair contract terms can have on small businesses who are contracting with larger suppliers.
“Now I’m worried! What should I do?”
Don’t stress! this is exactly what Canny Insight is here for! We can help you respond to these legal changes right now by:
- Reviewing your standard agreements, contracts and terms and conditions to ensure they don’t contain unfair contract terms;
- Preparing fresh agreements, contracts or terms and conditions for you that comply with the UCT laws; or
- Providing advice to you on any standard agreements, contracts or terms and conditions you’re being asked to enter into in order to see whether they will adversely impact you or your business with any now prohibited Unfair Contract Terms.
Now that two months has passed since the introduction of these laws, we want to encourage our Canny business clients to have their standard terms and conditions reviewed by our legal team at Canny Insight in order to ensure they comply with these new legal requirements.
There’s nothing more important to a business than its customers’ satisfaction, so don’t let these new laws get in the way of your happy client and supplier relationships!
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