By Arian Bahmiyari, a Law Clerk of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
Unfair terms in a contract can often be overseen and become problematic well after a contract has been entered into. Part 2.3 of the Australian Consumer Law (“the ACL”) aims to protect consumers in circumstances where they have limited opportunity to negotiate with businesses. It is therefore important to consider whether your agreements contain any terms that may be characterised as ‘unfair’. A term may be considered ‘unfair’ if it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Note, all 3 limbs of the unfairness test must be proven on the balance of probabilities in order for a court to determine that a term is unfair.
How Can You Spot An ‘Unfair’ Term?
Some Common Examples
A term that permits one party (but not another party) to avoid or limit performance of the contract
- This may look like an exclusion clause which ‘permit a business to avoid or limit meeting its obligations under a contract’, and can therefore lead to a ‘significant imbalance’ in the rights of parties.
- This can be mitigated by taking steps to explain to customers the effect of the term or if they are given reasonable notice of its effect.
A term that allows one party (but not another party) to terminate the contract
- If a party has the ability to terminate a contract without it being ‘reasonably necessary to protect their legitimate interests.’
- If terms undermine the ability of a consumer to terminate the contract despite the party’s omission under the contract.
A term that penalises one party (but not another party) for a breach or termination of the contract
- If sanctions are imposed over those of the law or penalties are imposed for trivial breaches of the contract.
- If a penalty is imposed on the consumer for terminating a contract when the business is at fault and has not complied with its obligation under the contract.
How Can We Help?
Both the ACL and the Australian Securities and Investments Commissions Act 2001 (Cth) enable consumers to engage private actions to enforce their rights or recover damages incurred by breaches of the law. Although it is ultimately the court’s decision to determine whether a term is ‘unfair’, our team at Matthews Folbigg may provide advice regarding your existing or proposed terms and conditions in order to propose any amendments to reduce the risk of such claims being made.
The ACL remains under consideration for reform in order to further strengthen the law pertaining to unfair terms and provide better recourse to victims of unfair terms. It is integral to all businesses that they remain aware of the change in law pertaining to unfair terms and that their contractual terms remain above board in order to avoid financial liability and detriment to your business. This can be addressed through receiving qualified legal advice from our debt recovery, litigation and commercial lawyers at Matthews Folbigg to ensure your agreements are free of unfair terms.
If you would like more information or advice in relation to Insolvency, Restructuring or Debt Recovery law, please contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
