Reforms To Unfair Contract Terms Laws

Reforms To Unfair Contract Terms Laws

Consumer law in Australia is constantly evolving, sometimes for the worse, but mostly for the better. One area of consumer law which affects both businesses and consumers is contract law, and in this area, the government has made some significant proposals recently, and particularly concerning unfair contracts. We preface this, with recommending that if you seek legal advice, you should contact a commercial lawyer.

Definition Of Unfair Contracts

As it stands a contract relating to a consumer or a small business will be deemed unfair if any terms or conditions within that contract cause any of the three scenarios below to be created.

1) It would be detrimental to a party to the contract if the term were to be applied or were to come into existence.

2) Any terms or conditions within the contract caused a significant imbalance in the relation to the rights and obligations of either party.

3) It is not reasonable to expect the contract to protect the legitimate interests of the party benefitting from the contract.

Penalties For Unfair Contracts

One of the biggest concerns relating to unfair contract law as it existed was the lack of any reasonable penalties for those flouting those laws and asking other parties to agree to contracts that would be deemed unfair based on the definitions above. However, that has changed with the new unfair contract legislation.

Now, unfair contracts are going to be considered unlawful, and therefore anyone subject to one may have the opportunity to seek civil penalties via the courts. One caveat is that the specifics of what civil penalties are to be applied by the courts have not yet been finalised.

Expansion Of Unfair Contact Applicability

Previously, the consideration of whether an unfair contract had been created would only occur if the business deemed to be wronged party had less than 20 employees. That number has increased to less than 100 employees meaning many more businesses will have a level of protection than had previously.

Another change is likely to see the threshold for a business turnover being deemed as a measure of applicability instead of the number of employees. The figure being considered is $10 million.

A third change surrounds the current requirement that any upfront price paid had to be below a certain threshold. Moving forward, the threshold may cease to exist for protections to exist relating to an unfair contract.

Other Proposals Relating To Unfair Contract Law

Some of the other changes the legislators are considering to improve unfair contract law include the following:

Greater Clarity Regarding What Constitutes An Unfair Contract: It is believed that the current definition of an unfair contract is not as clear as it should be. The intention is to create increased clarity as to the definition of an unfair contract and what constitutes one.

Proposed Exemption Clauses: New unfair contract legislation will specify what exemptions might exist within certain industries. This will relate to the minimum standards threshold within specific sectors and take account of these when determining which clauses might be exempt in relation to them.

Increased Flexibility For Court: Any new unfair contract legislation will have the intention of increasing the amount of flexibility a court has when determining unfair contract cases. In particular, the courts will have greater scope as to what penalties they can impose when they deem an unfair contract to have been used.

What Do These Changes Mean For Your Business?

They say “Forewarned is forewarned” so we hope that if you were not aware of the impending changes to unfair contract law you are now. However, we have just outlined some of the basics, so please do not consider any of this to be legal advice. For that, you should speak to your commercial lawyer and in doing so seek to ensure that any contract your business generates does not risk being considered an unfair contract.