Signed, sealed, not delivered: When contracts can be broken on unfair terms

Did you know that even if you sign a contract, parts of it can be struck out for being unfair?

As of November 2023, changes to the Australian Consumer Law now prohibit businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.

The changes will allow Courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts. Currently, a Court can only declare specific terms of a contract unfair and therefore void.

The November update sees just about every commercial contract in the market covered, that is, business to business contracts where one business employs 100 or fewer employees or has a turnover in the last income year of less than $10 million. For financial contracts such as loans, this is $5 million.

Picture this: You are a builder and presented with a purchase order form on a building site for materials. You sign confirming delivery, but delivery doesn’t happen for three weeks and the materials are faulty. The purchase order form says you have no rights to claim a refund… What do you do? The old adage that if you ‘sign a contract, you're bound by it’ is not quite right anymore.

Examples of unfair contract terms include:

1.          Allowing the seller to vary the price you pay under the contract without providing you the chance to end the contract or give you any advance notice. 

2.          Allowing a provider to cancel the contract for any reason they want, without any notice to you, leaving you in the lurch.

3.          An automatic renewal clause without notice to you.

4.          An indemnity – which makes you cover their costs – that is too broad.

5.          Making you 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.

This law applies to standard form contracts – so those that are ‘take it or leave it’ and not anything you’ve specifically negotiated.

Substantial penalties apply

There are now significant penalties (up to $50 million) for businesses that have unfair contract terms in their contracts. We recommend all businesses review their contracts and remove anything unfair.  

Take control of your contracts with OFRM

Our commercial law team are experts with contracts and can review any existing to ensure you’re aware of what you’ve signed, as well as preparing contracts and templates so you can rest easy knowing your arrangements are robust.

If you think you may have signed an unfair contract, reach out today.  Lachlan Edwards and Brian Hill are available to assist.

If you would like to discuss this further, you can call Lachlan Edwards on 03 5445 1031 for assistance.