TT Club Newsletter (220, November 2016)
Unfair Contract Terms in Australia
The Australian government has passed legislation extending protection against unfair terms in standard form contracts beyond consumers to Australian small businesses.
The Competition and Consumer Act 2010 (Cth) [link: https://www.legislation.gov.au/Details/C2011C00003] provides protection to consumers against the inequities which can result from unfair contract terms being unilaterally imposed in standard form contracts. In 2015, the Australian federal government engaged in a public consultation which highlighted that Australian small businesses underestimated the risks contained in standard form contracts and that they, like consumers, should benefit from legislative protection against unfair contract terms. The legislation applies where the goods or services have been provided within Australia.
There are a number of elements which need to be satisfied in order for the provisions of the legislation to apply. These elements are as follows:
- At least one of the parties to the contract must be a small business. A small business is one which employs fewer than 20 people at the time the contract is entered into. This includes casual staff who are employed on a regular or systemic basis.
- The value of the contract at the time it is entered into must not exceed AUD$300,000 (where the contract is for a period of less than 12 months) or AUD$1,000,000 (where the contract exceeds 12 months).
- The contract must be in the nature of a standard form contract. This term is not actually defined in the legislation but it is often referred to as ‘a take it or leave it’ contract. The legislation is not intended to absolve a small business from undertaking due diligence in contracts that are necessarily the subject of individual negotiation. Other factors which may be considered in order to ascertain whether a contract is of a standard form nature are:
- The ability of one of the parties to accept or reject the terms;
- Whether one of the parties had all or most of the bargaining power in concluding the contract;
- Whether the terms of the contract took into account the specific characteristics of the other party;
As a rule of thumb, a contract which requires automatic acceptance without the opportunity to negotiate or discuss the terms of the contract will constitute a standard form contract.
Certain contracts, including for carriage of goods by sea, are excluded. However, a freight forwarder’s terms and conditions, extending the period of carriage beyond the sea leg and including transport by road or rail, may still be caught by the provisions of the unfair contract terms legislation. Nevertheless, terms imposed by law (e.g. in Australia airway bills have the benefit of time and package limitations imposed by virtue of the Civil Aviation (Carriers’ Liability) Act 1959), will not be considered to be unfair.
A term of a contract could be considered unfair if it:
- Would cause a significant imbalance in the rights of the parties and their obligations;
- is not reasonably necessary to protect the legitimate interests of the party benefitting from the term;
- Would cause financial or other detriment if it were to be applied or relied upon.
For example, a term in a freight forwarder’s conditions preventing the carriage of dangerous goods without authorisation or notice may not in the circumstances be considered unfair where the purpose of such a term is broader safety considerations.
There are other considerations which may be taken into account in order to determine whether or not a contract term is unfair. Transparency of the term is important, including whether the contract is written in plain language, legibly and readily available to the other contracting party. Regard may also be had to the contract as a whole and whether, for example, a potentially unfair term is counterbalanced by additional benefits being offered.
A party asserting a contract term is unfair may either make an application to an Australian court or an agency such as the Australian Competition and Consumer Commission (ACCC) to lodge a complaint. The ACCC, with the objective of creating fair and transparent markets, is more likely to take action when it will address a wider public interest. Should a contract term be declared unfair, a court may order that the term is void, leaving the balance of the contract enforceable. Alternatively, a court may refuse to enforce a contract or direct a refund or the re-performance of services.
The legislation will apply to contracts entered into, renewed or varied after 12 November 2016. At this stage, until there has been judicial consideration of this legislation, it is uncertain whether standard terms and conditions containing typical exclusions for damage incurred during transport, reliance on package limitations and time limitations for notifying claims will be considered unfair. Such provisions are typical in the transport and logistics sector, and stakeholders need to be alert to the potential impact of this new legislation.