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Are you stuck in an unfair contract?

A guide for small businesses in Australia 

Table of Contents

  1. What is an Unfair Contract Term in Australia?
  2. What changed on 9 November, 2023?
  3. Do you qualify as a small business?
  4. What is a ‘Standard Form’ Contract?
  5. What considered ‘Unfair’?
  6. What happens if there are Unfair Terms in your Contract?
  7. Does the UCT Regime apply to my contract?
  8. Template Correspondence
  9. Do you want support?

What is an Unfair Contract Term in Australia?

In Australia, there are protections against Unfair Contract Terms (UCT) for small businesses and consumers in standard form contracts.

Unfair Contract Terms (UCT) is contained within the Australian Consumer Law and the Australian Securities and Investments Commision Act 2001 (ASIC Act), and generally applies to terms within standard contracts that:

  • cause significant imbalance in power between the parties arising under the contract;
  • is not reasonably necessary to safeguard the legitimate interests of the party who benefits from the term; and
  • would cause detriment (financial or otherwise) to a party if it were relied on.

What changed on 9 November, 2023?

In November 2023, significant changes were introduced to the UCT regime (we’ll call this, the regime) that expanded the scope of what is caught by the regime and the consequences for businesses that use unfair contract terms.

If you think you are involved in or about to agree to unfair contract terms, this website has the information you need to protect yourself or your business. It also has some tips on what to do if you think you have already entered into a contract with unfair terms.

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Do you qualify as a small business?

You are protected under Australian Consumer Law and the ASIC Act if your small business:

  • is a business that employs fewer than 100 people; or
  • has turnover for the last income year of less than $10,000,000

These parameters were broadened since 9 November 2023 to provide greater protections for small businesses here in Australia.

What is a ‘Standard Form’ Contract?

The UCT regime applies to ‘standard form’ consumer and small business contracts.

A standard form contract is one where the contract has “take it or leave it” terms. You can click to accept or not go forward with the contract.

Small business contracts protected under the law are agreements for the supply of goods and services (or sale or grant of an interest in land).

Broadly speaking, an agreement is more likely to be a ‘standard form’ consumer or small business contract, if:

  • one of the parties has all or most of the bargaining power;
  • it’s a template agreement (i.e., the terms were prepared prior to any discussion occuring between the parties);
  • the terms were offered, explicitly or implicitly, on a ‘take it or leave it’ basis (and despite any similar contracts being negotiated with different parties); and
  • one party is unable to negotiate the substantial terms of the contract, even where they are able to select a term from a range of set options and despite that party.

It is important to get legal advice to assist with determining whether a contract is a ‘standard form’ consumer and small business contract for the purpose of the UCT regime. Here at Marque, we can help with that. You can contact us to help you.

What considered ‘Unfair’?

A term of a ‘standard form’ contract will be unfair if it:

  • cause significant imbalance in power between the parties arising under the contract;
  • is not reasonably necessary to safeguard the legitimate interests of the party who benefits from the term; and
  • would cause detriment (financial or otherwise) to a party if it were relied on.

Some examples of ‘unfair’ contract terms include:

  • automatic renewal clauses, terms that permit a unilateral price increase (without the opportunity to negotiate or easily cancel the contract),
  • terms unduly restricting a party from commenting on the goods/services being provided.

Much like there are types of ‘standard form contracts’ that are excluded from the UCT regime, there are also types of terms that are not caught by the regime. These include, but are not limited to, where the term defines the main subject matter of the contract, the upfront price payable or the term is required by law (or taken to be included by operation of a Commonwealth, State or Territory law).

What happens if there are Unfair Terms in your Contract?

Following the recent changes to the UCT regime, unfair contract terms are now prohibited under the ACL and ASIC Act.

As such, if a term in a ‘standard form’ consumer or small business contracts is ‘unfair’ for the purposes of the UCT regime:

  • the term can be declared void and varied by the Courts; and
  • under the ACL, the Court can make orders for penalties to be paid by the business/individual that has imposed the term (the maximum penalty starts from $50,000,000 for a company and $2,500,000 for an individual).

Separately, if the ‘standard form’ contract involves the provision of financial services, the ASIC Act permits the Court to make orders for penalties to be paid by the business/individual that has imposed the term (starting at 50,000 penalty units for a business and 5,000 penalty units for an individual).

Does the UCT Regime apply to my contract?

If you think that you or your business is locked in a contract with unfair terms, it is important that you seek legal advice on your contract and what steps can be taken to seek relief, which will vary on a case-by-case basis.

In addition to obtaining legal advice, you can also:

  • speak or write to the contract provider about your concerns relating to the terms of the contract, as an example, we have put together a template form letter relating to an unfair automatic renewal clause that can be sent after consultation with your lawyers;
  • if you’re a small business, lodge a complaint with the Australian Small Business and Family Enterprise Ombudsman; or
  • if you’re an individual, seek assistance from your local consumer protection agency of the Australian Competition and Consumer Commission.

Template Correspondence

Fill in your details and the template will auto generate:

Dear [INSERT] ,

We refer to our [Contract Name] with [Company Name] , which was executed on [DATE] .

It has come to our attention that the [Contract Name] includes a clause that automatically renews the term of the agreement for a further period of [INSERT PERIOD] without further action being required of the parties.

At the time of entering the [Contract Name] , we were not provided with an opportunity to negotiate the automatic renewal clause and as such, our rights under the [Contract Name] were placed at disadvantage to that of [Company Name] .

In the circumstances, we understand that the automatic renewal clause is likely to be in breach of the unfair contract regime imposed by the Australian Consumer Law. We are therefore of the view that the automatic renewal clause is void and that [Company Name] is liable to penalties being imposed on it by the Courts for the use of an unfair contract term.

We are obtaining legal advice on this matter, however, to avoid further escalation, we seek to terminate the [Contract Name] upon expiry of this current term/with immediate effect.

In the meantime, we expect any outstanding obligations to be fulfilled promptly.

If you require clarification, please contact us at [Your Phone Number] or [Your Email Address] .

Regards,

[Your Name]

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