Unfair Contract Terms – Are Your Contracts Enforceable?

Recent regulatory, political and media attention on unfair contract terms and their particular prevalence in contracts with small businesses has resulted in proposed legislative changes. Furthermore, due to this attention, increased guidance has been provided as to what types of clauses in contracts may be unfair.

In his recent speech to the National Small Business Summit, ACCC chair Rod Sims noted there are two significant limitations to the existing unfair contract regime. Firstly, unfair contract terms are not illegal (although they can be declared void by a Court). Secondly, the ACCC cannot seek civil pecuniary penalties when a contract term is declared unfair and therefore void by the Court. Furthermore, the ACCC cannot issue infringement notices for contract terms that are likely to be unfair.

As per our previous article ‘Unfair Contract Terms - Will Your Contracts be held to be VOID?',for an unfair term to be void it must be within a small business contract and the contract is a standard form contract. For definitions of these and that of an unfair contract term, please see our previous article.

Recent Decisions & Examples

Section 25 of the Australian Consumer Law provides a non-exhaustive list of terms that may be declared unfair and thus void by a Court. In addition to these and those outlined in our previous article, the below list are further examples of terms/clauses that may be declared unfair/void:

1. clauses that provide the supplier with price variation ability

2. clauses that prohibit a customer from terminating a contract if dissatisfied with price increases

3. clauses that allow the supplier to impose monetary penalties on customers who wish to terminate their contracts early

4. clauses that allow the purchaser in exclusive supply contracts to declare particular products unfit and thus not eligible for purchase without a process of review (including clauses that then prohibit the supplier from re-selling these products to other purchasers)

5. clauses (required by produce purchasers) that prohibit produce farmers from selling their real property unless the prospective property purchaser enters into a new exclusive supply contract with the produce purchaser

6. clauses that require the full upfront payment of medical product contracts before the customer has the opportunity to properly consider medical advice regarding the medical goods/services

7. clauses that enable suppliers to unilaterally change terms in contracts pertaining to the increase of fees or changes in quality requirements without the option to the customer to terminate the contract without monetary penalty if they are unhappy with the increase/change

8. clauses that require one party to indemnify another for loss or damage, with no reciprocal obligation on that party

9. clauses that limit liability for loss or damage suffered by one party while not offering the other parties the same protection

The Labor Party announced in January 2019 its plans to crackdown on unfair contract terms, expand the definition of small businesses eligible for protection from such contract terms and introduce penalties of up to $10 million for contracts containing same.The Federal Government announced in March 2019 further options for reform including the extending of unfair contract terms to government contracts, further clarification of the definition for a standard form contract, re-defining small businesses in regards to unfair contract terms all subject to Regulation Impact Statement processes involving key stakeholders.

As such, as the ACCC continues to crackdown on unfair contract terms and with the federal election mere days away, we will likely see the introduction of law reform later this year making such terms illegal rather than merely void.

Please contact the contract experts at Gavin Parsons and Associates for advice as to whether your contract is compliant with current law.


Date posted: 2019-05-13