STEPHEN HAS RECENTLY BEEN WRITING A SERIES OF SHORT ARTICLES, PUBLISHED VIA LINKEDIN, ON UNFAIR CONTRACT TERMS. WE’RE SHARING THEM HERE.
Unfair contract terms – are businesses being careful enough?
Unfair contract terms – problem clauses part 1
Unfair contract terms – problem clauses part 2
Unfair contract terms – problem clauses part 3
Unfair contract terms – problem clauses part 4
Unfair contract terms – problem clauses part 4
By Stephen Robertson|16-11-22
There’s been lots of talk about ‘unfair contract terms’ changes recently; lots of concentration on the broader application (new <100 employees test; no upfront $ cap) and greatly increased penalties (which is horrible policy, in my opinion).
Let’s not get confused and lose sight of the fact that the core law hasn’t completely changed.
You should still be watching out for clauses which do this:
- let only one party avoid or limit contract performance;
- excuse one party from a breach’s consequences or let them assess when a breach has happened;
- let one party terminate or change the contract terms (such as the nature of goods / services / price / timing);
- let one party renew (or not) without the other’s agreement; or
- let one party decide what a contract means (this one is kind of crazy, right?!?).
If you thoughtfully consider your contracts from those perspectives and make appropriate changes, then you will massively reduce your risk and you’ll probably be fine. Also… you will probably have happier customers and a better market reputation.
Happy fairer contracting!
Stephen can be contacted at Stephen@sjrcommercial.com.au or (07) 2141 9288
Stephen’s original post and comments can be viewed on LinkedIn.
Unfair contract terms – problem clauses part 3
By Stephen Roberson |15-11-22
Businesses often have no idea what they’re signing up to.
I’m regularly seeing important contracts with terms that are mismatched to the actual facts, odd or just plain wrong – but they have been happily (or heedlessly) accepted by people in those businesses.
Surely, the ‘unfair contract terms’ (UCT) changes which the ACCC has been trumpeting will help the affected businesses in those situations? Well… not as much as you might think.
We’ve reached a bit of a weird legal place with the recent UCT changes, partially because of the expansion of the concept of ‘small business’ to those with < 100 employees (it was previously <20) (This test also counts part-timers by FTE and ignores casual casuals; new test only applies after phase-in).
The ‘20’ threshold did at least have some connection to ‘small’ business – but I doubt many of us would consider a business with say, 70 full-time, 20 part-time and 30 casual employees to be ‘small’…. though in that case they probably exceed the $10M turnover test.
Why does this matter?
Well, the logic of the UCT protection is that: “contracts are often offered on a ‘take it or leave it’ basis… Consumers and small businesses generally lack the resources and bargaining power to effectively review and negotiate contract terms” [Treasury Explanatory Materials].
Does a business with that many employees really lack the resources to get their contracts assessed? I highly doubt it.
But, more contract protection is good news, right? Again – not really; not if your business is RELYING on UCT laws to save you.
UCT laws do not help your business risk-manage, assess whether a contract is appropriate for what you’re doing, or stop the contract from being plain stupid – they just stop some (quite specific) terms from applying in some (quite specific) situations.
Put another way, unfair contract terms laws don’t create fair, relevant, or thoughtful contracts.
Proper lawyers can help you do that, though.
Stephen can be contacted at Stephen@sjrcommercial.com.au or (07) 2141 9288
Stephen’s original post and comments can be viewed on LinkedIn.
Unfair contract terms – problem clauses part 2
By Stephen Robertson|1-11-22
Last time, I wrote about ‘unilateral variation’ clauses and how they can blow up in your face.
Another common type of “problem clause” is one which locks in one party to the contract, but lets the other party exit.
When would you need this? Well, there are some legitimate situations, for example:
- orders are wildly beyond what you expect and you can’t possibly fill them all;
- due to supply constraints or other factors, you can’t perform what the contract requires;
- there are underlying conditions (for example, financing) which you can’t fulfil.
If you:
- have a legitimate need for such a clause; and
- explain that need in the document or other material which the customer sees, then you might be able to get enforceable clauses like that through.
However, sometimes the one-way termination or suspension rights just go too far, and are at risk of being deleted by a court.
If you’re the seller (usually the one drafting the contract) – why do you even need to think about possible unfair contract terms in your documents?
Because they’re going to increase your chance of customer complaints, court proceedings and Australian Competition and Consumer Commission (ACCC) action, and if the ACCC gets their way… they’re lobbying government on this issue – fines for your business.
So… how can you tell when unbalanced termination rights are OK (fair) and when they’re not (unfair)?
- Can you clearly ID your business need for the termination right?
- Can you explain it in words the customer can understand (and have you)?
- Have you considered the impact of termination on the other party and factored in a method for dealing with that?
- Can you give your buyer (other contract party) something to balance the differential termination right?
Thinking about your contracts at the front-end is far better (and much cheaper) than fighting about them later.
Happy (fairer) contracting!
Stephen can be contacted at Stephen@sjrcommercial.com.au or (07) 2141 9288
Read the original post and comments on LinkedIn.
Unfair contract terms – problem clauses part 1
By Stephen Robertson|24-10-22
Following my recent article about unfair contract terms, I wanted to highlight some common clauses which create these issues, and potentially result in complaints, court proceedings and Australian Competition and Consumer Commission (ACCC) action.
A common type of problem clause allows one person (usually the seller) to change the contract terms, without the other person’s agreement. Lawyers would call that ‘unilateral variation,’ so if you see that term used, that’s what it means.
It seems a bit of a weird idea, right? How can a contract allow the seller to change that contract, even if the buyer objects? Yet, there are lots of situations where this might be genuinely needed. For example:
- your franchisor might need to change the trademarks and colour scheme which you’re allowed to use, to reflect current branding. Or, update the manual to reflect new procedures.
- a property developer might need to be able to change the finishes of the unit which you’re buying. They won’t get finance to build the project, if a lack of fancy tapware might cause all of their contracts to fall over – the project would never get built!
- there might be changes in the law or in economic circumstances which no-one expected, which need to be responded to.
However, it’s also easy to see how ‘unilateral variation’ could be abused. What if the seller could increase the price 10%, but you had to buy it anyway? If 10% is ok, how would you feel about 50%?
So… how can you tell when ‘unilateral variation’ is OK (fair) and when it’s not (unfair)? Here are some tips (for the seller / person preparing the contract) for making it fairer (and more survivable):
- can you explain why the variation right needs to be there?
- if you have a good reason why you need the variation right, have you explained it so the buyer can understand? It may be wise to try.
- can you give your buyer (other contract party) something to balance the variation right?
For example, can they easily terminate the contract if they hate the change? Could you give them some warning before the change kicks in, at least? Perhaps the change could just apply to their next order?
Applying this sort of assessment to your contract variation rights, when you’re pulling the contract together, can reduce disputes, save costs and avoid future drama.
Thoughtful contracts are usually better for everyone.
Typical lawyer disclaimer at the end: there are special, extra laws which apply to franchising and buying off-the-plan property, which I haven’t tried to discuss here; I just liked those examples because I think they’re helpful.
Happy (fairer) contracting!
Stephen can be contacted at Stephen@sjrcommercial.com.au or (07) 2141 9288
Stephen’s original post and comments can be viewed on LinkedIn.
Unfair contract terms – are businesses being careful enough?
By Stephen Robertson|21-9-22
I don’t think they are, and notice that some surprisingly large businesses have been rapped over the knuckles of late.
A Tabcorp subsidiary (Maxgaming Qld P/L) was recently forced to make changes to their standard form contracts with small businesses, and a Fuji-related company (Fujifilm Business Innovation Australia Pty Ltd) agreed to comply with remedial orders in an ‘unfair contracts’ case brought in the Federal Court by the Australian Competition and Consumer Commission (ACCC).
So, what are these cases/enforcement steps by the ACCC actually about? What conditions are raising their hackles?
For Maxgaming, we have to rely on the ACCC’s press release, where they mention:
- automatic renewal of contracts without notice to the customer;
- increased fees where equipment was upgraded (without customer consent at the time); and
- excluded liability for negligence & wilful acts.
They have rectified their auto-renewal issue by notifying customers before the renewal, and limiting the renewal term to one year (previously up to six years).
For Fujifilm, the ACCC was particularly concerned with automatic renewal, liability limitation and unilateral variation (where contract terms could be changed without a further agreement by the customer). The court also made orders regarding unbalanced termination rights, unfair payment terms and other one-way obligations.
Here is an example of one of the clauses which the Federal Court order deemed unfair (in a contract with a small business):
“The customer’s use of the software is subject to the relevant end user licence agreement which can be amended without notice to the customer and which Fujifilm is not required to provide to the customer.”
Honestly, I don’t think it was hard to pick that term as being unfair…
It was also interesting to see this one deemed as being unfair:
“The customer states they have read each document forming part of the contract (including any document incorporated by reference and not provided to the customer) and has based its acquisition decision solely on their contents.”
Clauses of that type are very, very common (and are often highly unrealistic because everyone relies on marketing material etc.) and it’s interesting to see that one get clubbed with the ‘unfair’ tag. I query whether that clause would have been targeted to the same extent, if the other clauses had more balance to them. Perhaps leaving out “including any document… not provided” might have saved it.
The thing which often strikes me when I’m reviewing contracts is just how unnecessary and over the top some of the clauses are. They attempt to go so, so far that they’re just as likely to cause problems as to solve them.
Businesses should consider taking a more thoughtful approach because this issue is NOT going away. It’s an enforcement priority for the ACCC, and they’re still lobbying the Government for financial penalties to deter this sort of term.
We aim to take a sensible approach to commercial contracting and to recommend terms which have a good chance of standing up to scrutiny, and we’re happy to talk about that for your business, any time.
Stephen can be contacted at Stephen@sjrcommercial.com.au or (07) 2141 9288
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