Small Business & Unfair Contract Terms

//Small Business & Unfair Contract Terms

Small Business & Unfair Contract Terms

Reading the fine print may cause you to frown, However choosing not to read it may make you cry!

Many businesses sign standard term contracts on a regular basis or create their own standard term contracts to provide to customers. Often these contracts are signed without giving a second thought to the terms as they may be for a small sum or they may be for necessary products and services that the customer feels they may be required to sign. Often little attention to the fine print. However, standard term contracts are just like all other contracts and are governed by the same rules and regulations. The Australian Customer Law (formerly The Trade Practices Act) regulates contracts of this kind by ensuring that they are not misleading, deceptive or unfair.

What is an unfair contract term?

An unfair contract term pursuant to the Australian Customer Law is a term:-

  • Causes a significant imbalance in the parties rights and obligations under the contract;
  • Is not reasonably necessary to protect the legitimate interest of the party advantaged by the term;
  • Causes detriment (financial or otherwise) to a small business if it was to be applied or relied upon.

The unfair contract terms law applies to any contract entered into or renewed on or after 12 November 2016 where:-

  • At least one of the parties is a small business that employs less than 20 people on a regular and systematic basis.
  • The upfront price on the contract is no more than $300,000 or $1,000,000 if the contract is for more than 12 months.
  • Is for the supply of goods or services or sale or grant of interest in land.

Importantly, this law is targeted at business to business transactions. Historically, the consumer law in Australia was primarily focused on protecting consumers of domestic or household products. The unfair contracts law however ensures that there is a level playing field between large and small businesses

Examples of Unfair Contract terms:-

The ACCC has identified a number of potential contract terms that could be seen as unfair. Some examples include;

  • The right of an advertiser to remove advertisements for any reason without prior notice.
  • Unilateral variation of a contract, including the variation of product offering or price.
  • Limitation of liability.
  • Automatic renewal – Many contracts contain terms where there is an automatic renewal of the contract if the customer does not provide notice that it wishes to terminate the by the end of Initial term.
  • Early termination – Allowing a provider of a service to terminate a customer’s service
  • In relation to franchise agreements, unilateral variation of operations manuals.
  • The right of a landlord to vary rules of shopping centres unilaterally.
  • Misleading statements that contracts contain ‘entire agreement between the parties’.
  • Liquidated damages clauses.
  • Restraint of trade clauses.

Enforcement by ACCC

The ACCC has enforcement powers in relation to unfair contract terms. The first enforcement action by the ACCC was concluded in late 2017 in relation to standard term contracts used by J.J. Richards & Sons, the waste management company.

The standard term contacts adopted by J.J.Richards were perceived by the ACCC to be unfair in relation to a number of different terms:-

  • Binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term.
  • Allowing JJ Richards to unilaterally increase its prices.
  • Removing any liability for JJ Richards where its performance is “prevented or hindered in any way”.
  • Allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer’s control.
  • Allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days.
  • Creating an unlimited indemnity in favour of JJ Richards.
  • Preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

ACCC’s action against J.J Richards was taken to the Federal court and the terms described above were found to be unfair in that the “the Impugned Terms tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR Customers.”. The proceedings were resolved by consent and J.J. Richards agreed to an order restraining it from relying on the unfair terms in existing small business contacts and from using the terms in future contracts. J.J. Richards also agreed to publish a corrective notice and provide a copy of the Court’s orders to all its small business customers which are parties to the impugned contract.

Key points for small business

  • When signing standard term contract carefully read over the fine print.
  • If you are concerned by the fine print in a standard term contract, raise your concerns with the provider.
  • If you are stuck in a standard term contract you believe is unfair, come and get advice on your rights.

If your business utilises standard term contracts and provides them to customers, review your standard term contracts and in light of the information above to ensure you to do not breach the unfair contract terms legislation as this could be costly for you if you have failed to ensure that your contracts meet the necessary requirements.


By | 2018-03-27T05:24:22+00:00 March 30th, 2018|Law|Comments Off on Small Business & Unfair Contract Terms