15 Apr Businesses beware: no unfair contract terms allowed!
Does this sound familiar to you? If yes, chances are you may have this in your business’ terms and conditions or you may have seen this on a template you can grab online for free or at a low price. What you might not know is that the Australian Competition and Consumer Commission (ACCC) has recently established a high success rate in their actions challenging unfair contract terms in a variety of standard form consumer contracts.
The unfair contract terms (UCT) provisions of the Australian Consumer Law (contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) was introduced in 2010 for consumer contracts and now extends to small business contracts.
Accordingly, it may be a good idea for your company (whether a start-up or an established business) to think twice before downloading and using a free set of terms and conditions you find online.
When do UCT apply?
The UCT apply to a consumer contract that is a “standard form contract” for the supply of goods or services – one that has been prepared by one party (usually the business) and is not subject to negotiation. You see this often when downloading a mobile app or software with “I agree” button showing a hyperlink to terms and conditions, or when signing up for services offered by e-commerce, telecommunication or delivery businesses.
What are the exceptions?
The UCT do not apply to terms that:
- set out the main subject matter of a contract for specific goods or services
- set out the upfront price payable under the contract (provided it was disclosed to the consumer in a transparent way before the contract was entered into)
- have been subject to negotiation rather than a ‘take it or leave it’ approach
- are required or permitted by law.
When is a term considered ‘unfair’?
According to the ACCC’s guide, the general principle for a court to decide that a term is unfair is if it:
- would cause a significant imbalance in the parties’ rights and obligations
- is not reasonably necessary to protect the legitimate interest of the party that would be advantaged by the term
- would cause detriment to a party if it were applied.
The UCT provisions may apply in circumstances where terms and conditions of an online platform are hidden in fine prints or written in complex legalese and ‘over the top’ technical language.
Below are some examples of terms in a standard form consumer contract that a court may, in considering the contract as a whole, regard as unfair:
- a term that allows one party to terminate the contract at any time but not the other party, or implies that the consumer cannot terminate the contract under any circumstances or only with the business’ consent
- a term that imposes penalties for trivial breaches on one party but not the other party
- a term that seeks to limit liability for any loss or damage caused to the consumer, even in the event of negligence by the business or its employees
- a term that requires the consumer to accept increased costs or penalties after the contract was entered into
- a term that imposes automatic renewal on the consumer (unless the automatic renewal can be proven to be reasonably necessary for the benefits of the consumer)
- a term that allows the business to vary the upfront price payable without giving the consumer prior notice to accept or refuse the variation
- a term that allows the business to vary a product or service without notice to the consumer
- a term that substantially limits the consumer’s right to sue the business.
A UCT claim can have a detrimental effect on your business’ reputation. You should note that there is no one size fit all approach and it is crucial to make sure that your terms and conditions don’t get caught up by the UCT provisions.
We have lawyers who can assist you to navigate the changing commercial and contracting landscape. Please do not hesitate to contact us.
This article was written by Commercial and Tech Lawyer Zuong Dang.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. This is a guide to give you a better understanding of the Australian Consumer Law only and is not a substitute for the expert legal advice you can get from marshalls+dent+wilmoth and other relevant experts.