The Australian Consumer Law (ACL) provides Australian consumers of goods and services with some of the world’s strongest protections in their dealings with big business.[1]

Since 2016 the protections under the “unfair contract terms” regime of the ACL have been extended to protect small businesses who enter into standard form contracts to purchase goods or services from other businesses.

Examples of such unfair contract terms include:

• A term that would cause a significant imbalance in the parties’ rights and obligations under the contract;
• A term not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
• A term that would cause detriment (financial or otherwise) to a small business if that term were to be applied or relied on.

Terms of contracts that have been determined by the courts to be unfair include terms that: [2]

• Bind customers to subsequent contracts unless the customer cancels the contract within 30 days of the end of the term;
• Allow unilateral price increases;
• Remove a contractor’s liability for too wide a range of circumstances (where their performance was “prevented or hindered in any way”);
• Provide for exclusive rights;
• Provide for an unlimited indemnity (from legal costs and claims against the contractor); and
• Prevent customers from terminating if there were payments outstanding and allowing the Contractor to continue to charge under the contract after termination.

The Commonwealth Government recently published an exposure draft of a Bill [3] that seeks to further strengthen the protections provided by the ACL unfair contract terms regime. 

The draft Bill seeks to achieve its aim of benefiting both consumers and small businesses by enhancing available remedies and enforcement powers by:

• Prohibiting unfair contract terms from being included in standard form contracts (currently such terms are not prohibited);
• Giving Courts the power to impose significant pecuniary penalties for contraventions;
• Giving Courts the power to order a broader range of remedies, such as preventing an unfair contract term from being used in a future standard form contract, or ordering that an offending party publish information regarding their breach of the unfair contract terms regime on their website; or
• Creating a rebuttable presumption that a term that has been deemed unfair in a particular contract is taken to be unfair if it is used again in a similar contract in the future.

The draft Bill also seeks to expand the class of contracts covered by the regime by:

• Expanding the definition of small businesses that are protected to include businesses who have less than 100 employees or an annual turnover of less than $10 million (currently a business is only protected if it has less than 20 employees);
• Providing that all standard form contracts entered by a small business will be covered by the regime irrespective of the amount payable under the contract (currently there are certain maximum thresholds).

The Bill is still in exposure draft form and was until recently open for public submissions prior to formally introducing it into Parliament

If the Bill passes into law without amendment, the new provisions discussed above will apply to standard form contracts that are entered, varied or renewed after the date that is six months after the Bill commences.

Standard form contracts are usually used for convenience, are cost-effective and a fast way of binding parties. However, if the Bill is passed into law, such convenience may now come with more risk and costs if an unfair contract term is included in the standard contract and relied upon.

Hillhouse Legal Partners can help you by undertaking a review of your business’s standard form contracts and assist you in complying with the unfair contract terms regime.

We can also assist if you think you, or your business, have been impacted by the operation of an unfair contract term.

To make a time to discuss your particular circumstances with us simply send us an email or call 07 3220 1144.

[1] ACCC Speech, Chairman Mr Rod Sims 15 March 2013

[2] ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224

[3] Treasury Laws Amendment (Measures for a later sitting) Bill 2021