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Changes Made to Legislation Effective 12 November

By now everyone that is in business will be aware of this legislative change in law regarding Unfair Contract Terms. Under section 23 of the Australian Consumer Law (ACL), businesses must ensure that they comply with the obligation not to impose “unfair contractual terms” on consumers.

A standard form contract is one that has been prepared by one party to the contract and the other party has no power to negotiate its terms. It is usually offered on a ‘take it or leave it’ basis.

Businesses need to be aware that once a customer alleges that a contract (i.e, an online retailer’s “terms of sale”) is an SFC, it will be presumed that this is the case under section 27(1) ACL. Once the presumption has been raised, the onus is on the business to establish that this is not the case.

Under section 23 of the ACL, unfair terms contained in a standard form consumer contract are void. However, before this provision will apply, three (3) factors must be established. A term can only be voided if:

  • the contract is a “standard form contract”(SFC);
  • the SFC is a “consumer contract”; and
  • the term is “unfair”.

In general, where a business sells retail goods to individuals it is likely that any contract between the business and its customers will be a consumer contract.

WHAT MAKES A TERM UNFAIR?

The following questions can help you recognise a potentially unfair term, but it is important to note that the final decision on whether a term is unfair can only be made by a court. As per section 24 of the ACL, a term in an SFC will be considered unfair if it:

  • Does the term cause a significant imbalance between your rights and obligations and those of the business?
  • Is the term reasonably necessary to protect the legitimate interests of the business?
  • Would the term cause you detriment (financial or non-financial) if the business tried to enforce it?
  • Does the term restrict the customer’s ability to terminate the contract?
  • Does the term restrict the customer’s options for dispute resolution?
  • Does the term impose an excessive interest raid on unpaid amounts?
  • Does a term impose unfair cancellation fees;
  • Is there a term that allows a party to unilaterally or retrospectively vary the terms of the agreement.
  • How transparent is the term?

BEST BUSINESS PRACTICE

Now is the time to have EC review your Terms and Conditions to ensure that the terms contained therein would not be deemed unfair under section 24. Failure to do so may result in a later finding that terms included in your contracts are void and unenforceable, which has the potential to be severely detrimental to small businesses.

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