Unfair Contract Terms under Australian Consumer Law
If you ask your customers to sign a contract when engaging your services, you need to be aware of what Unfair Contract Terms are under Australian Consumer Law. If your standard contract terms are considered ‘unfair terms’ your customers may be able avoid paying you.
This raises several questions:
What are standard contract terms?
What are unfair contract terms?
Standard Form Contracts
The first thing to establish is whether your contract terms are standard terms. The expression ‘standard terms’ has a specific meaning under Australian Consumer Law. If you generally ask all your customers to sign the same set of contract terms, they are considered ‘standard terms’, or more specifically it is called a ‘standard form contract’. If your customer is not given any opportunity to negotiate or vary the terms of the agreement, then it is likely that your contract will be viewed as a standard form contract under Australian Consumer Law.
Ask yourself: are my customers expected to sign the contract on a ‘take it or leave it’ basis? If the answer is ‘yes’, chances are it will be considered a standard form contract.
The law recognises that standard form contracts are very one-sided, because one party wrote them, and the other party had no say in the them. Furthermore, consumers often don’t read all the terms before signing them, and therefore are not fully aware of what they are committing to. For these reasons, there are special laws in place to protect consumers who have signed such agreements. But where does this leave you in terms of protecting your rights as the business owner? Obviously you deserve some protection too.
Unfair Contract Terms
Unfair contract terms are just one of many protections available to consumers under Australian Consumer Law. But what makes a contract term unfair?
According to the legislation, a term is unfair if it:
- causes an imbalance in the rights of the parties;
- it is not reasonably necessary to protect the legitimate interests of the party; and
- it would cause detriment to one party.
We’ll briefly explain what each of these provisions mean.
Imbalance in the Rights:
An example of an imbalance would be if one party was penalised for terminating the contract, but the other party is not. Or perhaps if one party were allowed to vary the terms of the agreement, but the other cannot.
Imagine you hired a wedding photographer who was very highly regarded. You would likely pay a high premium for their services, and you would expect that person to be the photographer taking happy snaps on your big day. But what if their standard form contract said that they could send a different photographer on the day. Would that be considered fair? There is answer to this is not set in stone, and the courts will consider all surrounding circumstances. The most important point to take from this is that you need to ensure your terms are reasonable, and do not provide you with greater flexibility when compared with your customers’ rights.
As the business owner, you will have interests that need protection. For example, if you are a caterer, and you have already ordered the food for an event, you should be compensated for any loss if the customer cancels the event. That would be considered a legitimate interest. As such, a non-refundable deposit which covers such costs is likely to be considered fair. However, if you expected the customer to pay the entire amount up-front, and your contract stated that the entire amount was non-refundable regardless when the event was, and how much you have spent, then the term may be considered unfair, because the amount you are keeping is in excess of what is necessary to protect your ‘legitimate interests’. (See our article on Non-refundable Deposits)
A good example of where this gets tricky is in relation to weddings or other costly events. Wedding photographers often require payment of the full amount prior to the wedding day. Can this be considered a ‘legitimate interest’ given they haven’t even taken one photo of you yet? Well it might be considered legitimate if they had knocked back another customer for the same day. People regularly book weddings months or even years in advance, so it’s highly unlikely that they could get a replacement customer at the last minute.
The courts will consider several factors when determining what your legitimate interests are. If a matter goes to court it will be your responsibility to prove the contract term was necessary to protect your ‘legitimate interests’, so make sure your contract terms are proportionate to your interests.
This part is a little more straight forward. There needs to be some sort of loss or detriment to the other party. This can be financial, but is not limited to money. Looking at our non-refundable deposit example, there is clearly a financial loss to the party who loses their deposit. But another example might be a lost opportunity.
There are several measures you can take as a business owner, to increase the security offered by your contract terms. Some are as simple as ensuring the more important terms are brought to your customer’s attention before they sign the agreement.
If you would like us to help review your contract terms or discuss other ways you can improve the enforceability of your contract under Australian Consumer law, please make contact with us here.
The ACCC provides a lot of useful information on Unfair Contract Terms here.
Other useful resources: