The Australian Consumer Law (ACL), which
commenced in Australia on 1 January 2011, introduced new laws
relating to unfair contract terms. Under the ACL, courts can
declare void those terms in standard consumer contracts that are
"unfair". The rationale for the ACL is to protect
consumers from unfair contract terms and encourage the adoption of
"fair" contract terms.
The Australian Government is now proposing to
extend the existing consumer unfair contract term
protections for standard form contracts to small
businesses. In this regard, a consultation paper titled
"Extending Unfair Contract Term Protections to Small
Businesses" was released on 23 May 2014.
What is a "standard form contract"?
The unfair contract laws do not define "standard form
contract". However, broadly, a standard form contract will
typically be one that has been prepared by one party to the
contract and is not subject to negotiation between the parties,
which is the case, in particular, with many standard terms of
When is a term "unfair"?
A term is unfair when:
it causes significant imbalance in the parties' rights and
obligations arising under the contract;
it is not reasonably necessary to protect the legitimate
interests of the business; and
it would cause detriment to another party if it were to be
applied or relied on.
Examples of unfair terms in consumer contracts
Terms that may be regarded as unfair in consumer standard form
contracts may include the following:
terms that permit the supplier but not the customer to avoid or
limit the performance of the contract, terminate it, vary its terms
or renew or not to renew the contract;
terms that permit the supplier to:
change prices without the customer's right to terminate the
contract (lock in terms);
unilaterally determine when the contract has been
unilaterally vary the characteristics of the goods or services
to be supplied; and
assign the contract to the customer's detriment without the
terms that penalise the customer but not the supplier, for
breach or termination of contract;
terms that limit the customer's right to sue the supplier;
terms that limit the supplier's explicit liability for its
Why the need for reform?
It is perceived that consumers and small businesses may
experience similar situations and behaviours. Large businesses may
present them with standard form contracts and, like consumers, they
may lack the time and legal or technical expertise to critically
analyse these contracts, and the power to negotiate. In some
circumstances, these standard form contracts may be used to further
enhance or embed the commercial advantage or dominance of the other
party well beyond reasonable legitimate commercial interests.
The consultation paper states that "a legal framework
that appropriately addresses unfair contracts terms should ensure
that businesses that supply small business compete with each other
on price and quality without passing inappropriate levels and types
of risk to their small business counterparties...In turn, this
should stimulate innovation and growth by efficient small
businesses that would then be able to compete with larger
businesses on a level playing field."
The consultation paper was released on 23 May 2014 and is open
for submissions until 1 August 2014. We consider it likely that
reforms will be implemented. However, it will be interesting to
how "small businesses" will be defined in any new
whether the new legislation specifically identifies the types
of contracts to which it applies;
whether the unfair contract term protections will apply to
large business contracts with small businesses, or to also include
small business to small business contracts; and
whether the unfair contract term protections will be extended
to contracts for financial products and services.
We will keep a close eye on this and provide timely updates. In
any event, now is probably a good opportunity for businesses to
review their standard terms and conditions and other standard form
contracts in order to highlight potential problem areas.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Kott Gunning is a proud member of
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Sportscraft refunds and returns policy limitations went beyond consumer's rights under the Australian Consumer Law.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).