In today’s fast-paced business world, standard form contracts are a common tool for ensuring efficiency and uniformity in transactions. These pre-prepared contracts help streamline business processes, minimise negotiation time, and reduce legal costs. However, businesses must be vigilant to ensure that these contracts do not contain unfair contract terms. Such terms can not only be detrimental to the business relationship, but also lead to significant legal repercussions.

Understanding Unfair Contract Terms

An unfair contract term is one that causes a significant imbalance in the parties’ rights and obligations under the contract and is not reasonably necessary to protect the legitimate interests of the advantaged party.

Common examples of unfair contract terms include:

  • Unilateral Variation Clauses: Allowing one party to alter the terms of the contract without the consent of the other.

  • Automatic Renewal Clauses: Automatically renewing the contract without clear and transparent communication to the other party.

  • Limitation of Liability Clauses: Excessively limiting the liability of one party, especially in cases where the other party suffers significant losses or damages.

  • Termination Clauses: Allowing one party to terminate the contract at their sole discretion without providing a fair reason or adequate notice to the other party.

  • Penalty Clauses: Imposing disproportionate penalties or fees for breaching the contract terms.

Legal and Financial Consequences

The Australian Consumer Law’s (ACL) focus on fairness aims to protect small businesses and consumers from exploitation. If a Court or Tribunal finds a term in your standard form contract to be unfair, that term will be void. This means it cannot be enforced against the other party. The rest of the contract, however, will continue to bind the parties if it is capable of operating without the unfair term.

More significantly, the Australian Competition and Consumer Commission (ACCC) has the power to take legal action against businesses using unfair terms.

Reviewing Your Standard Form Contracts

Here are some steps you can take to ensure compliance with the ACL:

  • Audit Existing Contracts: Identify all standard form contracts currently in use and review their terms for potential unfairness.

  • Seek Legal Advice: Consult with legal professionals to assess whether your contract terms might be considered unfair and to understand the necessary modifications.

  • Implement Fair Terms: Ensure that any new contracts or amendments to existing contracts incorporate terms that are fair and balanced.

  • Educate Your Team: Train your staff on the importance of fair contract terms and the risks associated with non-compliance.

The use of standard form contracts is essential for many businesses, but it is equally important to ensure these contracts do not contain unfair terms. The penalties under the ACL are significant, and the ACCC is vigilant in enforcing these provisions. By proactively reviewing and amending your contracts, you can safeguard your business from legal risks and foster fairer commercial relationships.

If you need assistance in reviewing your standard form contracts or understanding your obligations under the ACL, Arro is here to help. Contact us today to ensure your business is compliant and protected.