Spot unfair contract terms in your agreements
If you are a small business, you likely use standard form contracts, which are subject to the Australian Consumer Law and hold the risk of being deemed ‘unfair’. Unfair contract terms can depend on the service provided, the context, and the position of the parties signing. If your terms are unfair, you risk voiding particular clauses in your contract, or at the least the unfair term.
How to check your contracts to ensure that your terms do not include unfair contract terms:
What are unfair contract terms?
According to Australian Consumer Law, a term will be unfair if it: (1) would cause significant imbalance in the parties’ rights and obligations arising under the contract; (2) is not reasonably necessary to protect the legitimate interests of the party benefiting from the term; (3) would cause detriment to a party if it were applied or relied upon. This regime applies to standard form contracts (those generally expected to sign on a ‘take it or leave it’ basis) commonly used in commercial business.
What happens if you have unfair contract terms?
If your contract includes an unfair term, the term may be deemed void, meaning it is no longer binding on the parties to the contract. To the extent that the contract can operate without the unfair term, it will continue to bind both parties. This situation can prove costly for your business, especially if a dispute arises as a consequence.
Examples of unfair contract terms:
(a) Automatic Renewal Clauses: Typically an automatic renewal clause will provide that a condition of the contract, or the whole contract as a whole, will ‘roll over’ unless written notice is given to terminate the agreement. Such clauses may be deemed unfair if the renewal period is excessively long, or if the party cannot cancel the contract at ease following renewal.
(b) Unilateral Price Increases: If a party in a more powerful position can raise prices by operation of a term without considering the rights of a weaker party, this could be deemed an unfair contract term.
(c) Setting the Price after the Contract is Signed: Most contracts stipulate a price owed by one party to another. A term could be unfair if it requires a party to sign a legally binding contract in the absence of an agreed price.
(d) Restricting Commentary About a Business: A term may be unfair if it attempts to restrict parties from providing reviews and commentaries regarding your business.
(e) Unfair Indemnity Clauses: Indemnity clauses generally state that one party will compensate the other where harm or loss is suffered. However, an indemnity clause will be unfair where it holds a party responsible for losses outside of their control.
What if your standard form contracts have unfair contract terms?
Running your own business can be demanding, especially when it comes to staying on top of all your legal obligations. The ACCC may ask your business to review and subsequently amend your standard form contracts, or challenge your standard form contracts before a court or tribunal. If your standard form contracts have unfair terms, there is a risk that a court will declare them void, causing damage to your reputation, relationships, and revenue.
As a business, you should review your standard form contacts and ensure none of the above are included to unfairly disadvantage a party to the contract. This is best practice to ensure your business can run smoothly and in compliance with Australian Consumer Law.
Find out more:
We have a dedicated commercial law team that can assist in drafting and reviewing your contracts to ensure they comply with the Australian Consumer Law and your industry. Contact us: Book A Consult here
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