By Meng Cheong & Albert Mu

Whether you are a consumer or represent a small business, or deal with consumers or small businesses, it is important to bear in mind that certain terms contained in the standard form contract to which you are a party can potentially be deemed unfair by a court under Section 23 of the Australian Consumer Law (‘ACL’).

One consequence of a term being held as unfair under the ACL is that the term is void, which means it cannot be enforced by a party. A court is empowered by Section 224 of the ACL to impose substantial fines on a person (including a company) who tries to rely on an unfair term within a standard-form consumer contract or small business contract, or enters into such types of contracts that contain an unfair term proposed by that person. Such fines are payable ‘to the Commonwealth, State or Territory, as the case may be’.

The ACL now defines a small business contract as one that ‘is for a supply of goods or services, or a sale or grant of an interest in land’ and, in addition, includes a party that is employing fewer than 100 people (when the contract is made), or has a relevant turnover of less than $10,000,000 in the last income year preceding the contract’s formation.

If a company contravenes a relevant unfair-term related provision under the ACL, the maximum amount of pecuniary penalty allowed to be potentially imposed on the company by the legislation is currently as high as the greater of:

  • $50,000,000;
  • Three times the value of the benefit derived from the relevant contravention (when such value can be determined by a court);
  • 30% of the company’s ‘adjusted turnover during the breach turnover period’ for the relevant contravention (when value of the benefit derived cannot be determined).

Importantly, the significant amendments to ACL mentioned above will also apply to existing contracts that have been renewed on or after 9 November 2023 with respect to conduct occurring at or subsequent to the time of renewal. For existing contracts that have been varied on or after 9 November 2023, any terms so varied or added will be governed by those amendments as well.

Regarding the determination of fairness, Section 24(1) of the ACL stipulates that:

A term of a consumer contract or small business contract is unfair if:

 (a)  it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

 (b)  it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

 (c)  it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

A court is also required to take into account the contract as a whole as well as the degree of transparency of the disputed term when assessing fairness of terms within a consumer contract or small business contract.

If you are a consumer or small business owner concerned about potentially unfair terms affecting your interests, or if you represent a business that deal with small businesses or consumers and would like to minimize the risks associated with the contracts your business provides, please contact Nevile & Co today.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.