The Australian legal framework allows capable commercial parties to contract and engage in business dealings they deem appropriate. There is an underlying assumption that parties will complete their due diligence and make themselves aware of the legal implications of the contracts they enter. Nevertheless, there are checks and balances in the law to protect consumers and small businesses from exploitation. In this article, we discuss unfair consumer contracts and the steps you should take to ensure your contracts with your customers are not unfair.
What is a Consumer Contract?
For instance, it may include:
- selling furniture or electronic appliances to consumers;
- building contracts concerning the construction of a residential house; or
- a contract of sale concerning a property.
Unfair Terms in Consumer Contracts
The unfair consumer contract regime only applies to standard-form contracts. These are contractual terms proposed by one party that are not generally negotiable. Consequently, the other party has no bargaining power. Accordingly, they must either accept the terms or walk away from the contractual arrangement. In consumer contracts, the party providing goods, services or interest will provide the standard-form contract.
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Consequences of Unfair Terms
If a court deems that a term in a consumer contract is unfair, then that term is void and not enforceable. The rest of the contract will operate to the extent it can without the unfair term.
Importance of Transparency
In assessing whether a term is unfair, a court will examine whether the contract terms are transparent. Therefore, terms in your consumer should be in reasonably plain language, legible, presented clearly and readily available to any party affected by the term. This means you should ensure your consumer contract is:
- free of legal jargon;
- not presented in a small font; and
- not difficult to read and comprehend.
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Example of Unfair Terms
Let us explore terms that are generally considered unfair in a consumer contract. If your consumer contracts have similar terms, you should consider removing them or amending them to the extent that it does not affect your legitimate business interest.
| One-sided Penalties | A term that penalises your customer for a breach or termination of the contract, but the same penalty does not apply to you. An example of this is a term that allows you to terminate a contract where there is a non-consequential breach of the contract by the customer, whereas a similar breach by you comes with no consequences. |
| One-sided Renewal Power | A term that unilaterally allows you to vary or renew the contract, but the same right does not apply to the customer. |
| One-sided Varying Power | A term that allows you 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. |
| Assignment Power | A term that permits you to assign the contract to the detriment of your customer without that customer’s consent. |
| Limiting Your Legal Liability | A term that limits your customer’s ability to take legal action against you. |
| One-sided Interpretation Power | A term that permits you to unilaterally determine whether the contract has been breached or to interpret its meaning. |
Key Takeaways
A consumer contract is a contract to supply goods or services or a sale or grant of an interest in land to an individual who intends to use those goods, services, or interest wholly or predominately for non-commercial purposes. Suppose there are unfair terms in consumer contracts. Accordingly, those terms will be removed, and the remainder of the contract will operate. Unfair contractual terms do not protect the parties’ legitimate interests. Instead, they create significant power imbalances between parties and cause detriment to the party not benefiting from the term if enforced. Therefore, if your consumer contracts have unfair terms, you should consider amending or removing them.
If you need advice on whether your consumer contracts have unfair terms, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A consumer contract is a contract in connection with supplying goods or services or a sale or grant of an interest in land to an individual, who intends to use those goods, services, or interest wholly or predominantly for personal, domestic or household use or consumption. For instance, selling furniture or electronic appliances to consumers, building contracts concerning the construction of a residential house or contract of sale concerning the property are all examples of consumer contracts.
If a court deems that a term in a consumer contract is unfair, then that term is void and not enforceable. The rest of the contract will operate to the extent it can without the unfair term.
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