How does an unfair contract term affect your contractual obligations to the other party? Does the contract continue to operate in spite of the unfair contract term, and to what extent? These are important questions in the world of contracts, and it is worth having a contract lawyer review your contracts if you feel one or more of the terms are unfair or unreasonable.

Enforcement

A term in a consumer contract might be challenged as an unfair contract term in three categories:

  1. A consumer may raise the unfair contract term as a defence to an action by another party to enforce a term in a consumer contract.
  2. A consumer may seek various remedies in response to the continued use and enforcement of an unfair contract term by the other party of an unfair contract term in a consumer contract to the detriment of the consumer bringing the action.
  3. A consumer might bring a “pre-emptive action” seeking a declaration that the term in the consumer contract is unfair so as to prevent reliance on that term in the future.

Effect of an Unfair Contract Term

If a term in a consumer contract is considered unfair, it is void. Where an unfair contract term is void, the contract will continue to operate without the unfair contract term as if it never existed. If the contract cannot operate without the term, then the entire contract will be deemed void.

Declaration that a Term is Unfair

The remedies available where one party relies on an unfair contract term are triggered by the term being declared unfair. A declaration will apply to all instances of the unfair contract term occurring in the consumer contract in question. Once a term is declared unfair, it is void in the consumer contract. As a consequence, a range of remedies can be triggered:

  1. Injunctions;
  2. Compensation orders; and
  3. Compensation orders for non-parties;

Rights of the Other Party

When a term in a consumer contract is declared unfair and therefore void, the other party may consider that without this term the contract does not protect its interests. In these circumstances, the other party may argue that the contract cannot operate without the term and therefore does not bind the parties to the consumer contract. The other party may argue that he/she has provided services that had not yet been paid and may have lost this right to retrieve payment under the contract due to the unfair contract term being void. However, the other party may have no right to apply for a compensation order.

Conclusion

Therefore, if an unfair contract term exists in a contract, it will be declared void. The contract will continue to operate, binding the parties as if this term never existed. If you require any assistance with identifying unfair contract terms in a contract and the appropriate remedies available, please call one of our experienced business lawyers today on 1300 544 755.

Lachlan McKnight

Next Steps

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.