1 July 2010 is the cut off date for unfair standard contract terms
In March 2010, the first part of the Australian Consumer Law was passed as the Trade Practices Amendment Act. It's tempting to assume that the ACL targets big corporations like telecommunications companies and banks, but it's risky for smaller businesses to dismiss it. New laws relating to unfair standard contract terms are well defined, exceptionally specific and understandable for consumers, so we can all expect our savvier customers to be reading contracts with a more educated eye. The laws apply to all businesses - big, medium or small. Plus, the laws apply to standard contracts in all forms, including online, over the phone or face to face. And in our industry, remember that quotes (verbal or otherwise) are often seen as contracts, so need to be included in any reviews performed.
The ACCC, ASIC and all state consumer affairs bodies have joined forces to create a guide to unfair standard contract terms, which in our opinion was extremely helpful when having another look at our Provider agreement. It's definitely in every business's best interests to read this guide and review their standard contract terms for fairness. This should be done before July 2010 as the law comes into effect from the 1st of July.
So when is a contract a standard contract?
A contract is a contract when there is an offer to do something, acceptance is given, there is an intention of legal consequences, and consideration (which is usually payment but can also be in return for services).
In layman's terms, a standard contract is a contract that's developed by one party without a process of negotiation. So basically, one guy decides what he will offer and what he expects from his customer, and lays down the law. Think about all the terms and conditions you accept when you purchase things online, or do your internet banking. Usually these contracts are standard and apply to all customers, and often are more in favour of the service provider than the consumer. The ACL aims to correct this imbalance.
How do 'they' decide whether a term is unfair?
Unfairness is really about an imbalance of power - and so when deciding whether a standard contract term is unfair, the balance of power is checked. For example, if one party can cancel the contract at any time whereas the other party is in it for life, this could be seen as a significant imbalance. Also, terms that are not necessary can be unfair, and terms that would cause detriment (financial or otherwise) if they were relied on. The guide lays this out very clearly, but essentially if your contracts are written in the spirit of fairness and don't attempt to take advantage of the consumer, you have nothing to worry about. Using plain language can definitely help - because the contract must also be transparent. Gone are the days where we use old English or posh language in our contracts, because our customers simply don't understand them.
So what can happen if a standard contract term is found to be unfair?
The term becomes void. This doesn't have the effect of voiding the entire contract unless the remainder of the contract terms are interwoven with the voided term. Plus, the organisation faces significant fines and will be named and shamed by the ACCC. It doesn't sound good, and of course defending claims against unfair contract terms will be expensive and time consuming for both you and the customer. For many contracts involving smaller transactions, it may not even make sense for a consumer to follow a path of legal claims - but make no mistake, they will!
Good luck with your reviews, and good luck to our consumers who will hopefully read this guide and look carefully at any standard contracts for fairness! If you have any questions or need some help, you can always contact your local Consumer Affairs office.
- Australia Capital Territory Office of Regulatory Services
- NSW Fair Trading
- Northern Territory Consumer Affairs
- Queensland Office of Fair Trading
- South Australia Office of Consumer and Business Affairs
- Tasmania Consumer Affairs and Fair Trading
- Consumer Affairs Victoria
- Western Australia Department of Commerce
