How Unfair Contract Terms Law Affects Advertising Agreements

On 12 November 2016, a new law came into effect regarding unfair terms in small business contracts. The laws extend the unfair contract provisions that were already available to consumers in their personal capacity to small businesses.

We have written about the new laws separately but just as a refresher, the law will apply where:

1. The contract is with a small business (i.e. one that employs fewer than 20 people);
2. The contract is for no more than $300,00, or $1,000,000 if it is for more than 12 months;
3. The contract is for the supply of goods and services or the sale/grant of interest in land; and
4. The contract is in a standard form.

A term will be deemed unfair if it satisfies the following criteria:

• It creates a substantial imbalance between the parties; and
• Is not necessary to protect the party benefiting from it; and
• Would cause detriment to the other party if it were applied.

A court or tribunal can find an unfair term void and unenforceable.

Importantly, the laws do not define ‘standard form’ contracts. However, the laws do state a number of factors that a court or tribunal must take into account when considering whether the contract is standard form. Generally, where the customer is offered the terms on a no negotiation, ‘take it or leave it’ basis, those contracts will be considered standard form contracts.

How Does This Relate to Advertising?

The ACCC has issued guidance on certain contract terms that it considers problematic, including for the advertising industry. The ACCC has noted that almost all Australian businesses use advertising to promote their goods and services. Furthermore, the proliferation of advertising beyond traditional media channels into areas such as social media, search engines and other digital platforms has meant small businesses interact with an increasingly wider range of advertisers.

The ACCC also identified advertising as an area which has received a particularly high number of complaints in relation to unfair contract terms. In fact, between 1 January and 30 June 2015, advertising services received more complaints about unfair business-to-business contract terms than any other industry.

What Advertising Contractual Terms Are Potentially Unfair?

The ACCC has identified five common problematic terms which it considers may be unfair:

1. Right to remove advertisements;
2. Unilateral variation of advertisements;
3. Limited liability and wide indemnities;
4. Termination clauses; and
5. Automatic Renewal.

1. Right to Remove Advertisements

Many contracts give the ad publisher a right to remove an advertisement for any reason. The ACCC was concerned that clauses of this nature give publishers more scope than is necessary to remove advertisements. The ACCC seemed to accept that publishers may need the right to remove advertisements where there are concerns that the ads are defamatory, or otherwise contravene the law. However, terms which provided an unfettered right to remove ads go beyond what is necessary in this regard.

2. Unilateral Variation of Contract

Many contracts give publishers the right to vary contract terms unilaterally. The ACCC was particularly concerned about these terms where they give the publisher the right to change the price or product offering without notifying the advertiser and without any option for the advertiser to terminate the contract.

3. Limited Liability and Wide indemnities

These clauses are standard in all contracts, not merely those which relate to advertising. The ACCC stressed that these terms are not inherently unfair, but noted that where a small business was required to indemnify (i.e. to take responsibility for) all losses the publisher suffers, there was the potential for the terms to be unfair.

4. Termination Clauses

The ACCC expressed the view that wide termination rights were likely to be unfair. For example, clauses that permitted the publisher to terminate the contract for any breach by the advertiser (regardless of the seriousness of the breach). By contrast, termination clauses which permit termination only where there has been a breach that is ‘material’ (i.e. significant in the context of the contract in question), were seen to be acceptable.

5. Automatic Renewal

The ACCC identified automatic renewal clauses as potentially unfair in the following instances:

• The publisher didn’t adequately disclose the clause;
• The publisher didn’t provide any notice of the pending renewal;
• The publisher can change the cut-off date for opting out of the renewal; and
• The publisher can levy significant changes against the customer in the event they cancel the contract after an automatic renewal has occurred.

The ACCC concluded that these kinds of terms were not necessary to protect the interest of the parties seeking to rely on them.

Key Takeaways

Remember, while this guidance provides the ACCC’s view, it is not definitive. Furthermore, as the ACCC’s guidance notes make clear, there is likely to be a significant amount of nuance in the terms. Context will ultimately affect whether or not they will be unfair (even in the ACCC’s estimation). If you have any questions or need assistance reviewing your contract with publishers of advertising material, get in touch with our consumer lawyers on 1300 544 755.