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Etienne Lawyers

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Unfair Contract Terms

Steven Brown

Steven Brown

For centuries parties to a contract were free to determine the terms of their arrangement. Within limits, whatever the terms were the parties were bound. The Courts would uphold the terms they entered into.

Over the centuries Governments have passed laws to lessen the strictness of the freedom to contract principle. The most recent change has come from the:

  • Australian Consumer Law and
  • the Australian Securities and Investments Act 2001.

These Acts have changed the principle of freedom to contract by enacting unfair contract terms legislation.

The underlying policy of unfair contract terms legislation respects true freedom of contract; while seeking to prevent the abuse of standard form contracts. Standard form contracts being by definition, contract provided on a take it or leave it basis. Not contracts that have been individually negotiated.

The unfair contract terms laws work in the following way:

The unfair contract terms laws provide that a term of a small business contract or a consumer contract is void if:

  • the term is unfair and
  • the contract is a standard form contract.

A contract is a "small business contract" if:

  • the contract is for the supply of goods or services; at the time the contract in entered into, at least one party to it is a business that employs less than 20 people; and
  • either
    1. the upfront price payable for the contract does not exceed $300,000 or
    2. the contract has a duration of more than 12 months, and the upfront price payable under the contract does not exceed $1m.

A contract is a "consumer contract" if the contract is predominantly to obtain a good or service that is for a personal, household or domestic use.

The unfair contract terms laws create a rebuttable presumption that provides:

  • If a consumer or small business alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless the supplier proves otherwise.

In deciding if a contract is a standard form contract, a court may take into account such matters that it thinks relevant but must take into account the following:

  1. whether one of the parties has all or most of the bargaining power relating to the transaction;

  2. whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;

  3. whether another party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;

  4. whether the terms of the contract take into account the specific characteristics of another party or the particular transaction.

An unfair term of a contract is defined to mean a term that:

  1. causes a significant imbalance of the parties' rights and obligations arising under the contract;

  2. is not reasonably necessary to protect the legitimate interests of the supplier; and

  3. causes detriment (whether financial or otherwise) to the consumer or small business if the supplier applied or relied on the term.
    The unfair contract laws set up a rebuttable presumption that a term is not reasonably necessary to protect the legitimate interests of a supplier.

In determining whether a term of a contract is unfair:

  • the Court may take into account such matters as it thinks relevant, but it must take into account the extent to which the term is transparent; and
  • the contract as a whole.

A term is transparent if it:

  • is expressed in reasonably plain language; legible; presented clearly; and
  • readily available to any party affected by the term.

The unfair contract laws give examples of the kinds of terms that may be unfair. They are:

  1. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to avoid or limit the performance of the contract;

  2. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to terminate the contract;

  3. a term that penalises, or has the effect of penalising, the supplier (but not the consumer or small business) for a breach or termination of the contract;

  4. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to vary the terms of the contract;

  5. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to renew or not renew the contract;

  6. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to vary the upfront price payable under the contract without the right of another party to terminate the contract;

  7. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to unilaterally vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;

  8. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to unilaterally determine whether the contract has been breached or to interpret its meaning;

  9. a term that limits, or has the effect of limiting, the supplier's (but not the consumer's or small business's) vicarious liability for its agents;

  10. a term that permits, or has the effect of permitting, the supplier (but not the consumer or small business) to assign the contract;

  11. a term that limits, or has the effect of limiting, the consumer's or small business's right to sue the supplier;

  12. a term that limits, or has the effect of limiting, the evidence the consumer or small business can adduce in proceedings relating to the contract;

  13. a term that imposes, or has the effect of imposing, the evidential burden on the consumer or small business in proceedings relating to the contract;

  14. a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.

There have not been many cases decided since the Acts were enacted. But all of the cases so far have been decided against the suppliers. The cases have dealt with unfair terms for the supply of:

  1. Christmas hampers;
  2. rental car contracts;
  3. waste removal services;
  4. serviced offices; and
  5. internet services.

The point to be made is that no longer will you have to be bound by a contract that contains unfair terms that you were stuck with by having to take or leave the contract.

If you feel you have this problem, Etienne Lawyers may be able to help you out of your dilemma.

If you are a business and you use standard form contracts, will your contract protect you in the era of courts striking down unfair contract terms? Contact us to find out.


by Steven Brown

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