Will standard form contracts continue to be enforceable? -
Proposed legislation could have the effect that all standard
form contracts used by businesses containing certain terms will no
longer be enforceable. Also, companies (and their officers) seeking
to enforce terms which are prohibited could be subject to
Recommendation- All standard form contracts may be affected and
should be reviewed.
A Bill released last week for public comment by the Federal
Minister for Consumer Affairs, Chris Bowen would, if it becomes
law, render unenforceable, and prohibit the inclusion of,
"unfair terms" or "prohibited
terms" in standard form contracts.
All standard form contracts entered into for the supply of goods
or services, including transfers of land or the supply of financial
services, will be covered by the Bill. This includes
We would recommend that all businesses review their printed
standard terms and conditions to ensure they remain
What types of contracts will the legislation apply to?
The Bill does not limit the application of the provisions to
consumer contracts. Indeed the Bill proposes wholesale changes to
the law relating to the use of unfair terms in standard form
contracts. There is no definition of a standard form contract;
however the Bill provides that any contract that:
is presented on 'take-it-or-leave-it' basis; or
is non-negotiable; or
does not take into account any individual circumstances;
will be a 'standard form contract'.
What will be the effect of the Bill?
Certain terms of standard form contracts will be rendered void,
and therefore unenforceable. For a term to be rendered void by the
Bill, it must fall into one of the following categories:
an unfair term; or
a prohibited term.
A term is unfair if:
it causes a significant imbalance in the parties rights and
obligations under the contract; and
it is not reasonably necessary to protect the legitimate rights
of the party who has the benefit of the term.
The Bill provides a list of guidelines to be used in considering
whether a term is unfair. They include any term that:
allows one party but not the other to terminate the
penalises one party but not the other for breach or termination
limits one party's vicarious liability for its agents;
limits one party's right to sue another party;
permits one party to assign the contract to the detriment of
another party without that other party's consent.
Other guidelines are set out in the Bill, while guidance will
also be set out in the Regulations.
In the consultation paper, examples were given of those terms
likely to be considered unfair. These included terms which allowed
one party to vary unilaterally terms of a contract or to impose a
cancellation fee. However, those terms will not be unfair unless
they meet both of the criteria set out above.
In practice, some of these terms may be considered to be so
unreasonable that they fall within the category of a
"prohibited term" (see below).
Excluded from the scope of unfair terms are terms which set out
an upfront price for the goods or services being supplied.
In order to minimise the risk that a term would be classified as
an 'unfair term', businesses will need to ensure that the
written in plain English; and
presented clearly to the other party.
In addition to these guidelines, the Bill also provides for a
certain terms to automatically be deemed to be unfair. These will
be set out in the Regulations.
Any business using a 'prohibited term' in a standard
form contract will be subject to fines.
What Does This Mean For You?
This means that any standard form contract may be subject to
proceedings on the basis that they contain unfair or prohibited
What Happens Next?
The legislation will be introduced in two stages. The first Bill
will involve unfair contracts amendments, while the second Bill
will involve changes to product safety laws and enforcement
The unfair contracts legislation will be introduced in the
Winter Sittings of Parliament (June 2009). It is expected that the
new national consumer law will be fully implemented by the end of
Submissions in relation to the Bill are due by 22 May 2009.
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.
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).