Australian Consumer Law prohibits certain types of unfair terms in standard form contracts. The regime applies where one party is a consumer or a small business (employing fewer than 100 people or with  annual turnover below $10M).

A standard form contract is a contract which is in a pre-prepared form, where there is little or no room for negotiation of their terms. It captures therefore many types of contracts, including terms and conditions of trade, standard terms, online terms, and written terms.

Examples of Terms that are Unfair Terms include:

1. Terms which have automatic renewal and no readily available means to opt out;
2. Where one party can vary without the other being able to do so;
3. Large fees upon termination;
4. Broad exclusion of liability of one party without similar rights upon the other party.

Until relatively recently, Courts could only deem an unfair contract term void and unenforceable. That is no longer the case. The Court can now impose penalties which are onerous and include:

1. Penalties up to $50 million for companies and $2.5 million for individuals per contravention;
2. The greater of $2.5 million or three times the benefit gained from the unfair contract term;
3. Personal liability for individuals involved in making or using the contract.

In addition to risk of Court imposed penalty, having an unfair contract term in a contract could lead the other party to the contract to argue that it can resist its obligations (or reduce its liability) under a contract.

Businesses should accordingly ideally review their terms of trade for both compliance and risk management.

Contact our Commercial and Corporate Law team at Mahons to have a confidential discussion regarding an issue you are facing in your business.

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