l ega l
unfair
contracts
Bryan Pickard
Greenhalgh Pickard
Solicitors and Accountants
S
tandard form contracts are used
extensively in the building industry.
Suppliers and contractors use their
own contract or an industry standard
contract. A standard form contract has
terms that only vary in the price and the
product or service being supplied. There is
no bargaining about the terms – it’s a take it
or leave it offer.
In 2010, the Commonwealth replaced
the Trade Practices Act 1974 with the
Consumer and Competition Act 2010
(CCA). Importantly, for consumers, it set
out consumer rights (called guarantees)
in the one schedule called the Australian
Consumer Law (ACL). The states have since
amended their laws to incorporate the ACL
- there is no longer an issue of differences
in the laws between the states and the
Commonwealth where goods or services are
supplied to a consumer.
An important change to the previous
consumer law was the inclusion in the ACL
of new laws relating to unfair consumer
contracts. Where a business deals with a
consumer using a standard form contract
that contains an unfair contract term, the
contract will be void unless the contract is
capable of operating without the unfair term.
The ACL states that a consumer contract is
unfair if:
30 Australian Window Association
• It would cause a significant imbalance in
the parties’ rights and obligations arising
under the contract; and
• It is not reasonably necessary in order
to protect the legitimate interests of the
party who would be advantaged by the
term; and
• It would cause detriment (whether
financial or otherwise) to a party if it were
to be applied or relied on.
In determining whether a consumer contract
is unfair, the extent to which the term is
transparent and the contract as a whole
must be taken into account. A transparent
term is one that is legible, presented clearly,
expressed in reasonably plain language and
readily available to the affected party. The
ACL gives examples of the kind of terms
that may be unfair. They include terms that
permit one party, but not the other, to do
such things as limit performance, terminate
the contract, penalise for a breach, vary the
contract or assign the contract.
Late last year, the ACL and the Australian
Securities and Investment Commission
Act 2001 were amended to extend unfair
contract protection to small business. A
consumer contract is limited to the supply
of goods or services or a sale or grant of
an interest in land to an individual whose
interest in the goods or services is wholly
or predominantly for personal, domestic
or hou sehold use or consumption. From 12
November, 2016, a standard form contract
that is made or varied by a small business
will have similar protection to a consumer
contract. A contract is a small business
contract if it is a standard form contract:
• For the supply of goods or services or the
sale or grant of an interest in land.
• Where at least one of the parties is a
small business (employs less than 20
people, including casual employees
employed on a regular and systematic
basis).
• The upfront price payable under the
contract is no more than $300,000 or $1
million if the contract is for more than 12
months.
If you are not sure if the contract is a
standard form contract ask the following:
• Does one of the parties have all or
most of the bargaining power in the
transaction?
• Was the contract prepared by one party
before any discussion occurred between
the parties about the transaction?
• Was the other party in effect, required to
either accept or reject the terms of the
contract in the form in which they were
presented?
• Was the other party was given any real
opportunity to negotiate the terms of the
contract?
• Do the terms of the contract take into
account the specific characteristics of the
other party or the particular transaction?
The unfair small business contracts law will
apply to contracts with a Commonwealth,
state or territory body if it carries on a
business. The law can be enforced by the
Australian Competition and Consumer
Commission, state consumer agencies or the
business taking legal action to enforce their
rights.