Standard form contracts are seen as a feature of efficient business practice. These are contracts with the same terms and conditions offered by a business to a class of customers across the board. Standard form contracts are offered on a take-it-or-leave-it basis, with few opportunities to negotiate the terms (hence facilitating efficiency). These documents are common, particularly for online businesses.
Last week, we discussed the features and types of documents considered to be a standard form contract. This week, we will examine what is an unfair contract term and when the rules against unfair contract terms do not apply.
The Australian Consumer Law (ACL) and Unfair Contracts
Recall in Part 1 we discussed the ACL. The Australian Competition and Consumer Commission (ACCC) administer laws against unfair contract terms in standard form contracts. The ASIC Act applies to the standard form contract for financial services, regulated by the Australian Securities and Investment Commission (ASIC).
The criteria for what is considered a standard form contract was discussed in Part 2.
What is an unfair contract term?
A term will be considered unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be disadvantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be relied upon.
What is considered an unfair contract term?
Whether a term or terms in a contract is ‘unfair’ will be examined within the context of the contract of the whole, and whether the purported unfair contract term is transparent.
The ACL also sets out the type of terms that may be unfair. These include:
- a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
- a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract; or
- a term that permits, or has the effect of permitting, one party to unilaterally vary the characteristics of the goods or services to be supplied.
Note that the law against unfair contract terms does not apply to a term that:
- defines the main subject matter of the contract;
- sets the upfront price payable under the contract; or
- the term is one required, or expressly permitted by a law of the Commonwealth, State or Territory.
When examining whether an alleged term is unfair, the regulator will examine the overall class of consumers engaging with the product or services, that is, they will examine the transaction and what the customer is receiving. Further, the term must be readily accessible by the customer at the time of entering into the contract. If not, the contract does not apply to such a customer, as they would not have had notice of the terms.
There are a number of issues to consider if you are a business using a standard form contract. These include:
- are the terms sufficient in covering your rights and liability?
- are your terms fair (e.g. under what circumstances can your customers terminate the agreement)?
- if there are any unusual terms, have you given your customers notice to those terms?
- does your customers have access to these terms when entering into the agreement?
Our team of contract lawyers have extensive experience in standard form contracts for both hardcopy and online execution. If you are concerned about any of the above, or if you would like assistance with reviewing, amending or drafting a standard form contract, contract LegalVision on 1300 544 755.