Unfair Contracts
Terms. Found.
Unfair contract terms refer to provisions or clauses in contracts that create an imbalance of rights and obligations between the parties involved, typically to the detriment of one party, often the weaker or less informed party.
These terms are considered unfair and are generally unenforceable or subject to legal challenge in many jurisdictions. The concept of unfair contract terms aims to protect consumers, small businesses, and individuals from being taken advantage of in contractual agreements.
These terms are considered unfair and are generally unenforceable or subject to legal challenge in many jurisdictions. The concept of unfair contract terms aims to protect consumers, small businesses, and individuals from being taken advantage of in contractual agreements.
Key Features of Unfair Contract Terms:
- Consumer Contracts: The unfair contract term protections primarily target contracts entered into with consumers. This includes contracts for goods, services, financial products, and real estate.
- Small Business Contracts: In addition to consumers, the protections also extend to standard form contracts with small businesses (defined by specific criteria), recognising that these entities may have limited bargaining power.
- Unfairness Test: A contract term is considered unfair if it creates a significant imbalance in the parties’ rights and obligations to the detriment of the consumer or small business and is not reasonably necessary to protect the legitimate interests of the other party. This test assesses whether the contract term is unfair in all circumstances.
- Examples of Unfair Terms: Examples of unfair contract terms in Australia include terms that allow one party to unilaterally change the contract without the other party’s consent, terms that disproportionately penalise one party for breach or termination, and terms that limit or exclude liability for one party’s negligence.
Consequences of Unfair Contract Terms:
- Unenforceability: Unfair contract terms are rendered unenforceable under Australian law. This means that the term cannot be relied upon in legal proceedings.
- Penalties and Remedies: Businesses that include unfair contract terms in their standard form contracts can face penalties, and consumers and small businesses harmed by such terms may be entitled to remedies, including damages and compensation.
Penalties for each unfair term:
- Individuals: up to $500,000.
- Businesses: the greater of:
– $50 million;
– Three times the value of the benefit if determinable; or
– If not determinable, 30% of annual turnover for previous 12 months.
Steps businesses can take to ensure their contracts will be compliant:
- Review any standard form contracts, identify unfair contract terms and decide whether the terms can be amended, or whether they are reasonably necessary to protect legitimate interests.
- Remove any unfair terms from all standard form contracts.
- Train staff to understand the changes and what they mean for your business.
Key Contacts
FCW Lawyers’ team can assist your business to review your standard form contracts to ensure they comply with the new laws.
