1. The laws defines an ‘unfair’ contract as follows
The laws make it clear that a contract is ‘unfair’ if it gives one party, but not the other, the ability to:
a) Avoid or limit the performance of the contract.
b) Terminate the contract.
c) Apply penalties against the other party for a breach or termination of the contract.
d) Vary the terms of the contract.
e) Renew or not renew the contract.
f) Vary the price payable under the contract without the right of the other party to terminate the contract.
g) Unilaterally vary the characteristics of the goods or services to be supplied under the contract.
h) Unilaterally determine whether the contract has been breached or to interpret its meaning.
i) Limit one party’s vicarious liability for its agents.
j) Permit one party to assign the contract to the other party’s detriment without their consent.
k) Limit one party’s right to sue the other party.
l) Limit the evidence one party can adduce in legal proceedings in respect to the contract.
m) Impose the evidential burden on one party in legal proceedings in respect to the contract.
2. The current laws for small business (from 2016)
The definition of ‘unfair’ stays the same.
- A small business is a business that employs fewer than 20 persons;
- The law applies where the contract does not exceed $300,000;
- If a standard form contract has clauses like this, the clauses are ‘null and void.’ That is, the clauses have no force at law.
Note: The laws do not go to the price of a contract or to the actual things to be done under a contract.
3. The ‘beefed up’ laws 2022
Unfair contract terms (UCTs) become illegal.
Financial penalties apply for using or relying on UCTs. Up to,
- $2,500,000 for individuals;
- $50,000,000 for corporations.
A small business is one with up to 100 employees or turnover of less than $10 million.
No threshold on contract value for non-financial contracts.
Threshold for financial contracts increased to $5 million.
3a. New powers for the courts.
These new powers are key to the ‘beefing up’ process.
- If the court finds a clause to be unfair, it is then illegal for that clause or similar clauses to be used in any contracts by anyone. It is illegal even if the clause has not been brought before a court.
- There does not have to be an actual loss for the court to make an order. The court can make an order if it thinks there might be a loss.
- It will be easier for the court to issue injunctions to stop the use of UCTs.
- The court can issue a restraining order against a person to stop them using UCTs.
Businesses cannot avoid the laws by making minor amendments to standard form contracts or by creating an ‘opportunity’ for amendments.
- Clauses required by legislation.
- Rules of financial markets, clearing houses. RBA requirements.
- Some insurance products—for example, renewable life insurance policies entered into before April 2021.