On Friday 20 March 2015, Prime Minister Tony Abbott and
Small Business Minister Bruce Billson announced that the unfair
contract terms regime contained in the Australian Consumer Law
(which presently protects consumers in relation to standard form
consumer contracts) will be extended to protect small businesses
that enter into standard form contracts.
A "standard form contract" under the proposed new
regime is likely to include franchise agreements. Franchise
agreements are generally presented to franchisees in a standard
form and are usually presented to a prospective franchisee on a
"take it or leave it" basis, with little scope for
negotiation. A standard form contract might also include a range of
other commercial contracts which are presented by a supplier to a
customer in a standard form (e.g. software licence and support
Under the present regime, a term of a consumer contract is
it would cause a significant imbalance in the parties'
rights and obligations arising under the contract; and
it is not reasonably necessary to protect the legitimate
interests of the party who would be advantaged by the term;
it would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.
Examples of unfair terms under consumer contracts can include a
term that gives one party (but not the other) the right to
terminate the contract or vary the contract. However such terms
will not always necessarily be unfair, it will depend on a
consideration of all of the relevant facts (including the
transparency of the term and the contract as a whole).
A term of standard form contract which is found by a court to be
unfair will be declared void. The contract will however continue to
bind the parties if it can operate without the unfair term.
Once the proposed bill is passed, franchisors ought to review
their franchise agreements to identify unfair terms which should be
amended or removed to ensure clarity and enforceability of the
terms of their franchise agreements. Relevant to this review will
be ensuring that the franchise agreement is clearly expressed and
in plain English. Franchisors presenting prospective franchisees
with overly complex, one-sided franchise agreements may find that
critical terms of the agreement are unenforceable.
The federal government intends that the changes will commence on
1 July 2015.
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.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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