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Unfair contract terms

The Australian Consumer Law (ACL) protects consumers and small businesses from unfair terms in standard form contracts.

A standard form contract is a legal agreement made between 2 or more parties. It happens when a party makes an offer and the other party accepts it.

You’re allowed to use standard-form contracts, as long as the terms in them are fair.

An unfair term:

  • doesn’t fairly divide the parties’ rights and obligations
  • is not necessary to protect your interests
  • would cause loss, if applied or relied upon, to either the consumer or small business.

This clip from our Australian Consumer Law film explains unfair contract terms.

Note: this video was produced prior to the introduction of unfair contract terms protections for small businesses in 2016.

Standard-form contracts

Small businesses

On 12 November 2016, small businesses were included in the ACL unfair contract term protections.

The law applies to contracts entered into or renewed on or after 12 November 2016, and where:

  • the contract covers the supply of goods or services or the sale or grant of an interest in land
  • at least one party is a small business, meaning you employ less than 20 staff (including casual employees)
  • the upfront price payable is no more than $300,000 for a 12 month contract, or $1 million for contracts longer than 12 months.

If changes are made to a contract after 12 November 2016, the law only applies to the changed terms.

Contracts for small businesses are standard-form contracts if you:

  • prepare them in advance for a small business to sign
  • offer it on a ‘take it or leave it’ basis to all small businesses
  • will not negotiate on contract terms with small businesses.

Some common standard-form contracts for small businesses are:

  • services provided, such as
    • information technology
    • advertising
    • document handling
    • security
    • transport
  • mobile phone contracts
  • utilities.

Contracts and terms that are not covered for small businesses

There are a number of contracts excluded from the unfair contract term protections, being:

  • contracts entered into prior to 12 November 2016, unless renewed on or after
  • shipping contracts
  • constitutions of companies, managed investment schemes or other kinds of bodies
  • certain insurance contracts, including car insurance.

There are number of terms excluded from the unfair contract term protections, being:

  • terms that define the main subject matter of the contract
  • terms that set the upfront price payable
  • terms that are required or expressly permitted by a law of the Commonwealth, state or territory.

Consumers

Consumers are protected from unfair contract terms in standard-form contracts.

These are contracts that are:

  • prepared in advance for consumers to sign
  • offered on a ‘take it or leave it’ basis to all consumers
  • not negotiated with consumers.

Some common standard-form contracts are:

  • mobile phone contracts
  • gym memberships
  • airline tickets
  • concert tickets
  • utilities.

Declaring a term unfair

Only a court can declare a term to be unfair. The court must:

  • take into account whether the term is transparent
  • consider the contract as a whole.

When a term of a contract is found to be unfair, the term is void as if it never existed. The contract is still valid to the extent that it can operate without that term.

A term on its own may seem unfair. However, the term may be reasonable when it is looked at as a part of the whole contract.

Types of unfair terms

Unfair terms might give you, but not the consumer or small business, the right to:

  • avoid or limit delivering on the contract
  • terminate the contract, with or without the knowledge of the consumer or small business
  • avoid penalties for breaking or terminating the contract
  • change the terms of the contract
  • renew the contract automatically
  • change the upfront price without giving the consumer or small business the option to cancel the contract
  • vary the characteristics of the goods or services to be supplied.

A term may unfairly protect your interests if it lets you:

  • decide by yourself what is a breach of contract
  • choose what the contract means
  • take no responsibility for the actions of your agents or contractors
  • pass your contract responsibilities to another party without their consent
  • limit the consumer’s or small businesses right to sue you
  • limit what evidence the consumer or small business can use if they do sue you
  • impose the burden of proof on the consumer or small business in legal proceedings.