Standard business terms not always binding when they are unfair

Most of my clients take the view that if you sign a contract, you're bound by it. But that's not always the case. When a contract contains ‘unfair terms’ those terms are void, or effectively removed from contracts.

Imagine this. Your business signs up to a 3-year service contract with another local business. A week later you receive 20 pages of standard terms and you flick through them without really taking it all in them. All is well until after 6 months, the service provider increases its prices substantially. You look at the fine print of the contract and see three clauses that hit hard:

1. One that allows the service provider to vary the price you pay under the contract without providing you the chance to end the contract or needing to give you any advance notice.
2. Another that allows the provider to cancel the contract for any reason it wants, without any notice to you, leaving you in the lurch.
3. Another where you have to pay a huge fee if you end the contract early. The fee isn't at all reflective of the loss of the service provider for you ending the contract

Unfair contract terms apply to ‘standard form’ small business contracts entered since late 2016 (a small business has less than 20 employees on a simple head count). The rationale is sometimes changes can't be made to contracts, or you're simply too busy running your business to notice some of these.

The lesson for businesses is three-fold:

1. If you have standard terms, play fair with what you require or impose on other businesses and examine how transparent your standard term are. In my career I have seen many unfair contract terms that don’t stand up when courts, tribunals or regulators consider them in a dispute
2. If you receive standard terms, always review contracts thoroughly in hope of preventing problems, and negotiating bad terms away.
3. You don't have to accept unfair contract terms, a contract should be the end product of balanced negoitations between the parties with a mutually acceptable outcome.

So how can OFRM assist you in this area?

• We can review a proposed contract for you to make sure you are aware of what you are signing up for
• We can prepare your contracts or contract templates to make sure your arrangements are robust
• We can advise you if you run into issues

Our business law team of Lachlan Edwards and Siobhan Liston are available to assist you review any contracts that are a problem for you. If you would like to discuss this further, you can call Lachlan Edwards on 0427 916 442 or Siobhan Liston on 03 5445 1067 for assistance.