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Contract Law - It's not fair!

The Commonwealth Government has recently amended the Australian Consumer Law in relation to unfair contracts. These are significant changes aimed at providing a level playing field when parties negotiate contracts. 

The changes apply to standard form contracts entered into or renewed on or after 12 November 2016, where the following criteria is met:

  • the contract is for the supply of goods or services or the sale or grant of an interest in land;
  • at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis); or
  • the upfront price payable under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months.

If a contract is varied on or after 12 November 2016, the amended consumer law applies to the varied terms of the contract.

A standard form contract is a ‘take it or leave it’ type contract that has been prepared by one party to the contract and the other party has little or no opportunity to negotiate the terms of it.

Types of terms that may be unfair

The amended consumer law sets out the following examples of contract terms that may be unfair:

  • termination of the contract – only one party to the contract can terminate;
  • avoiding or limiting obligations under the contract only apply to one party;
  • one party but not the other is penalised for breaching or terminating the contract; or
  • terms that enable one party but not another to unilaterally (without consulting the other party) vary the terms of the contract.

It is important to note that contract terms that set the upfront price payable under the contract are not covered by the law. Price is a negotiation point for the parties.

Who decides if a contract term is unfair?

It is not the ACCC that determines this but it is only a court or tribunal that has the jurisdiction to decide on whether or not a contract term is unfair.

Effect of having an unfair contract term

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.

Contracts and terms that are not covered

While the unfair contract terms laws cover most standard form contracts and contractual terms, there are a number of exceptions. The types of contracts that are not covered include:

  • Contracts entered into before 12 November 2016 (unless renewed on or after this date);
  • Shipping contracts;
  • Constitutions of companies, managed investment schemes or other kinds of bodies;
  • Certain insurance contracts (e.g. car insurance); and
  • Contracts in sectors exempted by the Minister – no sectors are currently exempt.

The types of terms that are not covered include:

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

If you think your contract or a term in your contract is unfair you should ask the other party to remove the term or amend it so it is no longer unfair or talk to your lawyer.

We are happy to assist with advice in relation to a contract that you have entered into or are considering entering into. Please contact us on 03 6332 9353 or use our Contact Us form -

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