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Changes to the Unfair Contract Terms Laws: $50 Million Incentive to Review Your Contracts

Updated: 3 days ago

Today marks a significant milestone in Australian consumer law. The new unfair contract terms legislation, which comes into effect today under the Australian Consumer Law, has the potential to reshape the relationship between businesses and consumers. In this blog post, we'll delve into the key aspects of this legislation, its implications for both businesses and consumers, and how it aims to create a fairer marketplace.


Understanding the Legislation


The unfair contract terms legislation is designed to protect consumers from contractual agreements that are heavily skewed in favour of businesses. It addresses a longstanding issue where businesses could include terms in contracts that were grossly unfair, leaving consumers at a disadvantage. These terms are now subject to closer scrutiny, ensuring that they do not unduly burden consumers.

The law allows a closer examination of contractual clauses to determine their fairness. Specifically, it covers standard form contracts, which are often used in consumer transactions, such as online terms and conditions, gym memberships, membership or subscription T&Cs, software licences and utility contracts.


What has Changed?


The most notable changes brought about by this legislation are:

1. The heightened scrutiny of contract terms for supply of goods or services;

2. Broadens the definition of what is a small business; and

3. Financial penalties can be imposed for non-compliance.


Penalties of $50 million or more can be issued for businesses that fail to comply with regime. If an individual has been found to use unfair contract terms, their penalties can be up to $2.5 million Courts can also order compensation orders where consumers have suffered financial losses due to unfair contract terms. The ACCC may also issue public warnings about a business's unfair contract terms. These notices can have a significant impact on a business's reputation, so it is more important than ever to ensure that your standard contract terms are fair.


Common Unfair Contract Terms


Understanding what constitutes an unfair contract term is crucial. Examples of clauses that would be considered unfair are:

  1. Unilateral Modification Clauses: Contract terms that allow one party, typically the business, to unilaterally change the terms of the contract without the consent of the other party, the consumer. This can be considered unfair as it leaves the consumer at a significant disadvantage.

  2. Excessive Termination Fees: Contract terms that impose exorbitant fees or penalties on consumers if they wish to terminate the contract. Such terms can be viewed as unfair, especially if the fees are disproportionate to the actual costs incurred by the business.

  3. Liability Caps: These were previously lawyers’ favourite clauses, however they will now be deemed unfair if the cap is not proportionate to the nature of the services being provided and the potential risks involved. A cap that unreasonably limits the service provider's liability, especially in cases of gross negligence or wilful misconduct, is highly likely to be considered unfair.

  4. Automatic Renewal Clauses: Contracts that automatically renew without the consumer's explicit consent can be problematic. Consumers may not be aware of the renewal, leading to unwanted and potentially unfair charges.

  5. Excessive Late Payment Fees: Terms that impose excessive late payment fees on consumers for minor delays in payments. The legislation aims to prevent consumers from being unduly burdened by such fees.

  6. Imbalanced Indemnification Clauses: Contracts that require the consumer to indemnify the business for a wide range of potential liabilities, even those not directly related to the contract. These terms can be seen as unfairly shifting the risk entirely to the consumer.

  7. Wide Discretionary Powers: Contract terms that grant the business wide discretionary powers without any defined limits or accountability. This can lead to abuse of power and is generally considered unfair.

  8. Non-Negotiable Contracts: Contracts that do not allow consumers any room for negotiation, even when there are provisions that could be disadvantageous to them. Allowing some flexibility for consumer input is essential for fairness.

  9. Overly Complex or Lengthy Contracts: Extremely complex or lengthy contracts that make it difficult for consumers to fully understand their rights and obligations can be seen as unfair. Contracts should be written in plain language and be accessible to the average consumer.

  10. Hidden Terms and Conditions: Clauses that are hidden in the fine print of a contract or not adequately brought to the consumer's attention can be considered unfair. Consumers should be aware of all terms and conditions before entering into an agreement.

Compliance and Implications


For businesses, compliance with the new legislation is paramount. Non-compliance can lead to severe penalties, compensation orders and public shaming by the ACCC.

Businesses face the challenge of revising and reevaluating their contracts to ensure they align with the legislation. Ensuring that their contracts are fair and transparent is not only a legal requirement but also a way to build and maintain trust with their customers.


Practical Tips for Businesses


For businesses and consumers alike, proactive management of contractual risk is essential in light of the new unfair contract terms legislation. Here are key steps to consider:

  1. Conduct a Comprehensive Review: Start by thoroughly reviewing your standard form contracts. Identify any clauses that could potentially be considered unfair under the new legislation.

  2. Seek Legal Advice: Engage legal experts to assess your contracts and provide guidance on removing or amending problematic clauses. Law by Design is offering a free review of your standard form contracts to determine whether they comply with the new law.

  3. Transparent and Clear Language: Use plain and easily understandable language in your contracts. Ambiguity or complex jargon can be viewed negatively under the legislation.

  4. Offer Negotiation Options: Whenever possible, allow consumers some flexibility to negotiate terms. This not only demonstrates a willingness to be fair but also helps in crafting more balanced agreements.

  5. KeepRecords: Maintain detailed records of contract negotiations and any changes made during the process. This can serve as evidence of your commitment to fair dealing.

  6. Regular Updates: Contracts should evolve with the legal landscape. Regularly revisit your contracts to ensure they remain compliant with the latest laws and regulations.

By taking these proactive steps, businesses can effectively manage contractual risk and ensure that their agreements are fair, transparent, and compliant with the new unfair contract terms legislation. This approach not only safeguards the rights of consumers but also helps businesses maintain trust and credibility in the marketplace.


Conclusion


The new unfair contract terms legislation in Australia is a significant step toward creating a fairer marketplace and protecting consumers from exploitation. While it presents challenges for businesses, it ultimately benefits everyone by promoting transparency, fairness, and trust in commercial transactions.


With $50 million in penalties at stake this is serious business. We encourage you to stay informed about these changes and to seek our advice if you have any concerns about your client contracts. As mentioned above, LxD is offering a no obligation, free review of your client contracts to make sure you are not at risk of fines and your contracts being considered unenforceable.


Contact us today to get this review underway. You can reach us at hello@lawbydesign.com.au or (07) 3041 4063




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