Under current law, a large number of businesses need to disclose to their customers any ‘substantially prejudicial’ parts of their contracts. Prior to entering into a contract or completing a sale, businesses caught by the new laws must disclose any clauses that ‘substantially’ prejudice the interest of their customers. These businesses must also disclose any commission or referral arrangements with another supplier when recommending that a consumer purchase goods or services from that supplier. As a business owner, failure to comply with these requirements may imply you are acting unlawfully. This article will outline who needs to disclose substantially prejudicial terms, as well as how you can ensure compliance.
Who Needs to Comply?
The current Fair Trading Act 1987 (‘Fair Trading Act‘) captures a wide range of businesses. The laws will apply to your goods or services, requiring your business to disclose substantially prejudicial terms to consumers if:
- you supply goods or services to consumers in New South Wales (NSW); or
- your goods or services will affect a person or result in loss or damage in NSW.
To understand whether the law requires you to comply, we will need to examine what:
- a ‘consumer’ is; and
- ‘substantially prejudicial terms’ are.
Consumers
A ‘consumer’ under the Australian Consumer Law (ACL) is not just an individual person. It includes businesses that purchase:
- goods or services (other than a number of excluded transactions, including financial products and insurance services) less than $100,000; or
- goods and services for more than $100,000 if the goods or services are of a kind ordinarily acquired for personal, domestic or household use or consumption (unless the goods are purchased for resale).
Substantially Prejudicial Terms
There is currently no definitive list of what constitutes a substantially prejudicial term and no clear definition. However, some examples of substantially prejudicial terms are clauses stating that:
- you intend to charge interest on overdue fees;
- you do not offer refunds;
- personal information is disclosed to third parties;
- you will direct debit the fees;
- you have excluded your liability for a number of things, such as for consequential loss;
- your liability is capped;
- the contract must continue for at least a minimum timeframe;
- the contract automatically renews;
- you may terminate the contract for convenience, but your customer does not have the right to terminate for convenience;
- your customer is required to indemnify you; or
- the customer must pay an exit fee.
The intent of these laws is to increase transparency and competition. They also aim to give the consumers a chance to understand the risks of entering into a contract. Historically, it has been too easy for businesses to impose unfair contracts on customers. Therefore, these changes to the Fair Trading Act allow consumers to make considered and meaningful decisions about the contracts they enter.
How Do I Comply With the New Laws?
Businesses that need to comply with the new laws within the Fair Trading Act must ‘take reasonable steps’ to disclose substantially prejudicial terms and make their customers aware of these items.
Below are a number of steps you can take to adequately disclose any substantially prejudicial terms:
- If your contract is a hard copy document that customers sign, you may choose to have a section called ‘disclosures’. This should be at the top of your contract, which the customer signs before reading and signing the remainder of the contract.
- If your contract is online, the ‘disclosures’ section should be visible prior to your customer accepting your terms, for example, on an ‘order summary’ page.
- While you may write the clauses in your contract in sophisticated language, you should write your disclosures using plain English.
- You should give your customers an opportunity to read and comprehend any substantially prejudicial terms. They should be able to clarify their meaning and impact before entering into the contract. You should not slip the disclosures in subtly so that the consumer will not have a chance to read them.
What Happens if You Do Not Comply?
There are substantial penalties if you do not comply with these new laws. Penalties include:
- $110,000 for corporations; and
- $22,000 for individuals.
As a franchisor, you must not engage in misleading and deceptive conduct. We explain what it is and how to avoid it.
Key Takeaways
Currently, complying with the changes to the Fair Trading Act is now mandatory for businesses that need to comply. Your disclosures should be easily accessible to your customers and should be read and understood by customers before entering into a contract with you. You should seek legal assistance reviewing your contracts to identify terms that may be substantially prejudicial to consumers in NSW, so that you can then disclose these to customers.
If you need guidance on disclosing substantially prejudicial 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
The law will apply to your business if you supply goods or services to consumers in New South Wales or if your goods or services will affect a person, or result in loss or damage, in NSW.
Businesses must take reasonable steps to disclose substantially prejudicial terms and make their customers aware of these items.
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