Unfair contract terms

There has been consumer protection from unfair contract terms in relation to standard terms contracts for around a decade, and similar protection for small businesses for around 4 years.  The Federal Government has now announced that it intends to make changes to the laws concerning unfair contract terms to beef up their operation in a number of important areas:

  • Instead of simply having the effect that the unfair term is void, courts will be able to impose penalties for breaches of the law;
  • There will be a wider application of the laws to small business, with the ability for some very substantial businesses to have access to remedies;
  • There will be some evidentiary improvements, with guidance for the definition of a standard form contract;
  • The courts will have the ability to be flexible in giving remedies rather than simply declaring the term to be void.

While there is no timing set for these changes, it is always prudent to have business standard forms of agreements reviewed to ensure that there are no unfair terms.  Generally speaking, an unfair contract term is one which:

  • Causes a significant imbalance in the parties rights and obligations (usually with the party who prepares the contract having the greater rights);
  • The term is not reasonably necessary to protect the legitimate interests of the party advantaged by it; and
  • It causes financial or other harm (such as delay) if it was relied upon.

While there are different drafting styles for business agreements, there is much to be said for agreements that are as brief as is reasonable given the subject matter and are clear and easily understood.

For advice in relation to business contracts, please contact Peter Muller at peterm@qbmlaw.com.au or Kayla Davison at kaylad@qbmlaw.com.au