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As of the start of 2021, 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 which ‘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 purchases goods or services from that supplier. For the purposes of this article, we will address the requirement to disclose substantially prejudicial terms. This article will outline: 

  • who needs to comply with the laws; 
  • how to comply; and 
  • the effects and risks of not complying.  

Who Needs to Comply

The new changes to the Fair Trading Act 1987 (NSW) (Fair Trading Act) capture 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 $40,000; or
  • goods and services for more than $40,000 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).

Note that in the middle of 2021, the $40,000 threshold is set to increase to $100,000. 

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; 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 to 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. 

Before your customer enters, accepts, or signs your contract, or before you finalise a sale, you should clearly outline any terms of the contract or sale which may be substantially prejudicial. Your customer should not be required to search for the disclosures; they should be very noticeable, and you should draw your customer’s attention to them.

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 where the consumer will not have a chance to read them. 

Suppose that you are in doubt as to whether a clause is going to be substantially prejudicial to your consumers. In that case, it is better to err on the side of caution and disclose the clause. 

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.

Key Takeaways 

Businesses were given a grace period at the end of 2020 to allow them time to introduce ways of disclosing substantially prejudicial terms to their customers. As of 2021, complying with the changes to the Fair Trading Act is now mandatory for the 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 are not sure whether you need to comply, or if you need guidance on how to comply, contact LegalVision’s contract lawyers on 1300 544 755 or by fill out the form on this page.

Frequently Asked Questions

Who do the laws relating to ‘substantially prejudicial terms’ apply to?

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.

How can businesses comply with the new laws?

Businesses must take reasonable steps to disclose substantially prejudicial terms and make their customers aware of these items. 

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