A fair go all round? A practical guide for what to do with the new unfair contract terms regime
On 12 November 2016, a new regime of regulation affecting standard form contracts will be introduced in accordance with the Treasury Legislation Amendment (Small Business & Unfair Contract Terms) Act 2015. This affects the Australian Consumer Law and the Australian Securities & Investments Commission Act 2001.
For many of our clients, one of the most visible standard form contracts will be their terms and conditions of sale together with some of their security documentation, including guarantees and indemnities and general security agreements.
It’s time for a checklist to make sure you don’t get caught out.
If you ticked mostly ‘yes’, chances are the new laws apply to you.
Some more Q&A for you
1. What sort of unfair terms should I watch out for? Any term that would:
- cause “a significant imbalance in the parties’ rights and obligation“; and
- is not “reasonably necessary” to protect the interests of the party who would be advantaged by that term; and
- would “cause detriment” to a party if it were to be applied or relied upon.
2. What are some examples of unfair terms?
- A term that allows one party only to terminate a contract.
- A term that permits one party only to avoid or limit performance of the contract.
- A term that penalises one party only for a breach or termination of the contract.
3. How can I tell if any of my terms are unfair?
An unfair term in a standard form contract is one which:
- gives or provides to one party a significant imbalance to its rights;
- causes detriment in some manner; and
- is not reasonably necessary.
Remember, if a customer claims the term is unfair it will be up to you to show otherwise.
What’s the downside?
- Your term will be void and not be binding on your customer.
- Additionally, you may be subject to orders by a court or tribunal which varies your contract, orders damages and/or costs and/or refunds.
- You may be subject to an injunction to stop certain conduct.
In our view, the greatest damage that could be done by having unfair contract terms would be to your reputation. No one likes dealing with anyone who has been found to be unfair in their dealings with their customers. It undermines the trust of any existing or potential customer and can result in a massive loss of goodwill and hence, sales.
Are there financial penalties?
No, but (there’s always a but) …
In the Europcar case, Europcar agreed that its conduct included making misleading representations and it accepted a pecuniary penalty of $100,000 as imposed by ASIC. Although the unfair contract protections do not include fines and penalties, it may be that conduct could also be classified as misleading and consequently subject to penalties as contained under the ASIC Act.
You can view the judgment at this link.
What should I do now?
- Review the terms of any standard form agreements, which could include your credit applications, terms and conditions of sale, any security documentation including guarantees, indemnities and security agreements.
- Consider things like not just the terms but the size of the typeface. Consider highlighting any terms that impose a liability on a customer so that it is clear you have been up-front and they have been fully advised of the existence of the term.
- Consider making your terms less legalistic and more plain English. Many standard form contracts we have seen are nothing more than a hotchpotch of terms put together on a piecemeal basis without any thought at all behind them. That in itself can be misleading — better to get it looked at, do it once and do it properly.
- Last but not least, get all this in place by 12 November 2016. Consider an action plan:
We all know that prevention is better than cure. Here is your opportunity to get it done in a timely fashion and help protect your company’s future.