Businesses often use pre-written contracts, where the other party to the contract can’t change any or most of the terms of the contract. They can only ‘take it or leave it’. Have you ever ticked an “I agree” box online to accept terms and conditions, or signed a pre-printed agreement? These are examples of standard form contracts.
How can I tell if a contract is a standard form contract?
Contracts are often prepared by one party, and they ask the other party to agree to the contract. If you’re signing a lease for your business, it’s the landlord that will prepare the lease and offer it to you. If you’ve bought new accounting software, the service provider will ask you to accept the terms and conditions. These will generally be considered standard form contracts.
A contract is likely to be a standard form contract if the party that prepared the contract:
- has all or most of the bargaining power in the transaction
- prepared the contract without or before any discussion between the parties about the transaction
- effectively allowed the other party to only either accept or reject the terms of the
- contract as presented
- did not give any real opportunity to negotiate the terms of the contract
- hasn’t changed the terms of the contract take into account any specific features of the other party or the transaction.
Under the law there is a presumption that a contract is a standard form contract. The party that prepared the contract must prove that it isn’t. The factors above help determine if the contract is or isn’t standard form.
When might a term in a contract be considered unfair?
Contract terms are unfair if they: cause a significant imbalance in the rights and obligations of the parties under the contract are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term, and cause financial or other harm to the other party if enforced.
If all of these three things are present, then the term is likely to be unfair. Keep in mind, term shouldn’t be considered in isolation. There are two other factors which will influence whether a term is unfair:
- What the rest of the contract says. Contracts must be considered as a whole, rather than just one single term or one part of a contract. This includes considering whether there is another term in the contract that might counter-balance the potentially unfair term.
- Whether the term is transparent. A term is transparent if it is in reasonably plain language, clear, and not hidden.
Businesses covered by unfair contract terms protections
Businesses will be covered by the unfair contract terms protections for any new or varied standard form contracts, if they:
- have fewer than 100 employees; or
- make less than $10 million in annual turnover.
Consumers also have rights under the law in relation to unfair contract terms, so you should also check your membership and other agreements you enter with consumers and avoid using unfair contract terms in these.
Examples of unfair terms
The law sets out examples of terms that may be unfair, including:
- terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract terms that allow one party (but not the other) to end the contract;
- terms that penalise one party (but not the other) for breaching or ending the contract terms that allow one party (but not the other) to change the terms of the contract.
Unfair contract terms in franchise agreements
The use of standard form contracts is common in franchising and many franchisee and franchisor businesses are small businesses. Franchisees and master franchisees who enter into standard form small business contracts also have the benefit of the unfair contract term protections.
The ACCC published its report on Unfair contract terms in franchise agreements in December 2023, which summarises our key findings of targeted franchising compliance checks and highlights the most common potential unfair contract terms relating to franchise agreements:
- unilateral variation clauses withholding and set-off payment clauses
- audit power clauses
- restraint of trade clauses
- termination clauses.
ACCC v Fuji Xerox Australia Pty Limited
The ACCC instituted proceedings against Fuji Xerox Australia (now Fujifilm Business Innovation Australia) and Fuji Xerox Finance (now Fujifilm Leasing Australia) alleging that a number of Fuji’s standard form contracts contained unfair contract terms.
Fuji entered standard form contracts with small businesses for printers and related software. The unfair contract terms included terms providing for automatic renewal, excessive exit fees and unilateral price increases.
Some of the types of terms declared to be unfair:
- Automatic renewal terms: permit Fujifilm to renew the contract for a further period unless customers cancel the contract a certain number of days before the end of the contract term.
- Disproportionate termination terms: allows Fujifilm to terminate the contract in a significantly wider range of circumstances than those which allow the customer to terminate the contract, if any.
- Termination payment terms: require customers to pay extensive exit fees to Fujifilm in the event the contract is terminated, including certain charges which Fujifilm can set Unilaterally.
- Unilateral variation terms: permit Fujifilm to unilaterally vary some terms of the contract including the charges and terms contained in documents other than the signed contract.
What can I do if I think a contract has an unfair term in it?
If you think a contract you have entered or are considering entering, has a potential unfair term, there are options available to you.
- Contact the business: engage with the business directly and let them know your concerns. If a standard form contract contains any unfair terms, businesses must take action to address them. This may include deleting or amending the term or adding or amending another term in the contract.
- If you’re an IPA member, you can access technical guides/advice on your member dashboard.
- Contact your state Small Business Commissioner or the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
- Seek legal advice: You can seek legal advice by contacting a legal service in your state or territory.
- Make a report: you can report your concerns to the ACCC. We use all reports as sources of intelligence to help inform the identification of serious and systemic breaches of the law, and what broader compliance, education or enforcement actions we may take.
Keep in mind, the ACCC is not a complaint handling body. We rarely become involved in individual consumer or small business disputes. See our compliance and enforcement priorities for more information about how we decide where to focus our resources.
Penalties for breaches of unfair contract terms law
Ultimately, only a court can decide if a contract term is unfair. Significant penalties can apply.
Since 9 November 2023, businesses have been prohibited from proposing, using or relying on unfair contract terms in standard form contracts with consumers and small businesses. For unfair contract terms entered into or renewed after 9 November 2023, the maximum penalty for businesses that breach these laws is the greater of:
- $50,000,000
- Three times the value of the ‘reasonably attributed’ benefit obtained from the conduct, if the court can determine this, or
- If a court cannot determine the ‘reasonably attributed’ benefit, 30 per cent of adjusted turnover during the breach period.
Individuals may also be liable for financial penalties of up to $2.5 million.
The ACCC has announced its compliance and enforcement priorities for 2024/25. Unfair contract terms in consumer and small business contracts are one our compliance and enforcement priorities.
Further information and resources
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