By Andrew Egri, Lawyer
With courts now hearing the first claims under the expanded unfair contract laws which have been in force since 12 November 2016, it is a timely reminder to not-for-profit organisations to act fairly in their contractual relationships.
A term can now be declared void by a court if it is:
The expanded regime applies to contracts which are entered into after 12 November 2016. A contract entered into before 12 November 2016 is also covered by the expanded regime, if the contract is renewed or varied after that date.
A ‘small business contract’ is a contract where:
A ‘standard form contract’ is one that has been prepared by one of the parties and is offered on a ‘take it or leave it’ basis.
A contract is less likely to be a standard form contract if negotiations occur prior to the preparation of the contract, or if the other party was given an effective opportunity to negotiate the terms of the contract prepared. Contracts that take into account the specific characteristic of another party or the particular transaction are also less likely to be standard form contracts.
A term of a small business contract is unfair if:
The law provides a sample of unfair contract terms, including those which permit only one party to:
Earlier this year, in the first action taken under the expanded regime, the Australian Competition and Consumer Commission (ACCC) accepted a court-enforceable undertaking from Sensis.
Sensis had been representing to customers that its White Pages and Yellow Pages online packages and printed bundles had a minimum contract terms of 12 months and monthly fees. However, Sensis failed to disclose to potential customers that on expiry, the packages would renew automatically for an additional 12 month term. If this additional term was cancelled after a certain date, the customer would incur a cancellation fee equal to the cost of the remainder of the extended term.
As a result of the ACCC’s investigation, Sensis gave an undertaking to refund affected customers and to adequately explain to customers the terms of their automatic contract renewals and cancellation processes.
Following the Sensis investigation, the ACCC has made the new unfair contract terms laws an enforcement priority. ACCC Deputy Chair, Dr Michael Schaper, said that the ACCC “has serious concerns about the use of wide-ranging termination clauses that allow a business to unilaterally terminate a contract without reasonable cause.” Dr Schaper also warned that businesses which continue to use these termination clauses in their standard form contracts with small businesses risk ACCC enforcement action, including court proceedings to have those clauses declared unfair.
Not-for-profit organisations that use standard form contracts should take the opportunity to review any standard form contracts to ensure that the terms contained would not be unfair. Any terms which are found by a court to be unfair are void and unenforceable, which may significantly impact a not-for-profit organisation’s standing.
Not-for-profit organisations which are ‘small businesses’ and are bound by or offered standard form contracts are also encouraged to review the terms of those contracts to identify potential unfair terms and consider raising them with the other parties. While the expanded application of the unfair contract laws provide additional protections to not-for-profit organisations, early identification of potential unfair terms is key, as going to court remains a costly exercise. In contract law, as always, prevention is better than cure.
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