What is an unfair contract?

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Table of Contents

• Which Contracts are Covered?
• What is a ‘Consumer Contract’?
• When is a Contract ‘Unfair’?
• Terms Which are Likely to be Considered Unfair
• Some Terms Cannot be Challenged
• Potential Outcomes if a Contract is Found to be Unfair

When you agree with another party to enter into a legal agreement the parties will generally be bound by the terms of the agreement.  Nevertheless, in a small proportion of cases a party might be able to claim the contract is invalid because it is “unfair”.  This may impact any agreements you have entered into with your customers or some other contracts you have entered into with other businesses, including, for instance, an electricity provider.

Which Contracts are Covered?

The unfair contract laws cover only some contracts – generally contracts where the terms and conditions of the contract are set by just one of the parties and the other party has had little or no ability to negotiate the terms.

Contracts covered by unfair contract laws are known as ‘consumer contracts’. This means the typical contracts covered by the laws involve consumers and are specifically for the supply of goods and services to consumers in many industries, including:

• telecommunications;
• utilities;
• motor vehicles;
• finance;
• gyms;
• travel.

What is a ‘Consumer Contract’?

The courts regularly decided whether a given contract should be deemed a consumer contract covered by unfair contract laws.  In making this decision a court will generally consider:

• does one party hold virtually all the bargaining power?
• was the contract prepared by one party before any negotiation or discussion between the parties?
• was the less powerful party given any opportunity to negotiate the contract’s terms?

When is a Contract ‘Unfair’?

A consumer contract may be considered ‘unfair’ and thus not legally binding if:

• the contract creates a significant imbalance in the parties’ rights and obligations – i.e. it’s in one party’s favour;
• the imbalance in the contract is not necessary to protect the stronger party’s interests;
• it would cause some kind of detriment to the party who is at a disadvantage in the contract.

Terms Which are Likely to be Considered Unfair

These types of contract terms may result in a contract being held to be unfair:

• terms which allow one party to change the contract without consulting the other party;
• terms which allow one party to avoid responsibility when things go wrong;
• terms which allow one party to completely avoid any liability for negligence;
• terms which allow one party to make a one-way determination as to whether the contract has been breached.

Some Terms Cannot be Challenged

Unfair contract laws do not allow a consumer to challenge:

• terms relating to the price;
• terms defining the product or service being supplied;
• terms that are explicitly allowed or required by other legislation.

Potential Outcomes if a Contract is Found to be Unfair

If a contract is found to be unfair then it may be declared void or a court may vary the contract so that it is deemed to no longer be unfair.

A court may also direct the refund of moneys or return of property.  One party may also be required to pay damages or provide goods/services at their own expense.

For further legal advice on whether or not a contract is unfair, speak with one of our contract lawyer at a fixed-fee rate.