Contracts are an integral part of our business transactions and consumer purchases in Australia. Whenever someone buys a product or service, they generally enter into a contract with the seller which outlines the rights and responsibilities of both parties. Some contracts are formal written documents while others are verbal or implied. Regardless of the form, contracts aim to provide certainty for buyers and sellers.
However, some contracts contain terms that are inherently unfair to one of the parties. Unfair contract terms can limit liability for the seller, allow unfair price increases or make it difficult for the buyer to exit the contract. Standard form contracts, where the terms are set by the seller and offered on a ‘take it or leave it’ basis, often contain unfair terms as the buyer has little opportunity to negotiate.
To address this power imbalance, the Australian Consumer Law protects consumers and small businesses from unfair terms in standard form consumer and small business contracts. The ACCC, Australia’s consumer watchdog, enforces these laws. In November 2023, important changes to the unfair contract terms regime will come into effect which aim to strengthen protections.
According to the ACCC, “the laws protect consumers and small businesses from unfair terms in standard form contracts…[by making] it illegal for businesses to propose, use or rely on unfair contract terms.” A standard form contract is a “a pre-written contract where the buyer can’t negotiate or change the terms…they can only take it or leave it.”
Unfair terms are those that “cause a significant imbalance in the rights and obligations of the parties; are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term; and would cause financial or other harm to the other party if enforced.” Examples include terms that allow one party to avoid responsibility or change terms without consent. Only courts can make a final decision on whether a term is unfair by considering the contract in entirety and if the term is transparent.
The changes in November 2023 aim to strengthen these protections. The revised unfair terms regime will apply to all new or renewed standard form consumer and small business contracts from this date. It will be illegal for businesses to propose, rely on or use unfair terms, with penalties for breaches. The changes also update the definition of ‘small business’ to include those with less than 100 employees or $10 million turnover.
The ACCC recommends that “any business that uses standard form contracts should review their contracts to make sure any terms are not unfair” before November 2023. For consumers and small businesses, the ACCC advises understanding your rights, reading contracts carefully before signing, and speaking up if there are concerns about unfair terms.
While contracts provide stability and certainty in transactions, unfair terms undermine this by creating unreasonable disadvantages for some parties. The ACCC and Australian Consumer Law aim to level the playing field to ensure all consumers and small businesses receive a fair go. With changes coming into effect in November, it is important for all parties to understand their rights and responsibilities.