Upcoming Bolstering of Unfair Terms Protections – What You Need to Know

Draft legislation was recently released proposing to bolster consumer and small business protections against unfair terms. Including, introducing penalties and a broader range of remedies against breaches of unfair terms protections.

What are unfair terms?

This concept has been protecting Australian consumers and small businesses from one-sided standard form contracts since 2010.

Many will be familiar with standard form contracts offered by large businesses on a “take it or leave basis”. Where consumers and small businesses lack the bargaining power to negotiate balanced arrangements for the supply of goods or services.

Common examples of unfair terms within a standard form contract include:

• permit one party (but not another party) to avoid or limit performance of the contract;
• permit one party (but not another party) to terminate the contract;
• penalises one party (but not another party) for a breach or termination of the contract; and
• permits one party (but not another party) to vary the terms of the contract.

What are the issues with the existing unfair terms protections

The existing protections regime ensures that an unfair term within a contract would be void and unenforceable. Meanwhile, other “fair” ones would continue to be binding. Additionally, a consumer or small business who has suffered loss because of suppliers relying on unfair terms may seek compensation.

Recent reviews have found that the protections regime did not provide sufficient deterrence against using these terms in standard form contract and that some of the legislative arrangements around the protections were not clearly stated and created uncertainty in Australian business.

How would the unfair terms protections be strengthened?

The draft legislation strengthens the remedies and enforcement of the protections regime by:

• providing courts the power to impose a penalty for proposing, applying or relying on an unfair term;
• streamlining the powers of a court to void, vary, or refuse to enforce part or all of a contract including unfair terms;
• clarifying the court’s power to making orders and issue injunctions;
• expanding the class of contracts covered by unfair terms protections, by expanding the definition of “small business” to business that employ fewer than 100 employees or have a turnover of less than $10,000,000; and removing the existing “contract value threshold”
• creating a new rebuttable presumption that terms that have previously been found unfair that are subsequently included in relevant contracts in similar circumstances, will continue to remain as such.

Take home points

While the current protection regime has been around for some time, the proposed further protections: increase the applicability of the protections to further businesses and contracts, increase powers of courts to enforce these protections, and introduce penalty provisions against businesses utilizing these unbalanced strategies.

Now is therefore a good time for businesses to review their standard terms of trade to consider whether any of those may be fall under this category and subject to the above protections.

Need help?
If you are unsure about how these changes could affect you or your business, get in contact with our experienced team here or call (03) 9642 2252.