When do the Unfair Contract Term laws apply?

The unfair contract term law applies to consumer contracts and to small business contracts. The law only applies to contracts that are “standard form contracts.” Standard form is usually understood to mean a document that is routinely used in all transactions without negotiation or amendment. Standard form contracts are commonly described as presented to consumers on a “take it or leave it” basis.

Australian Consumer Law expressly excludes certain categories of contract from unfair contract term law and we will consider these in our next article.

Section 27(2) provides a non-exclusive list of considerations for a court when determining if a contract is a standard form contract including:

  • whether one of the parties has almost the bargaining power in the transaction;
  • whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
  • whether another party was, in effect required to accept or reject the terms of the contract in the form in which they were presented; and
  • whether another party was given and an effective opportunity to negotiate the terms of the contract.

Application to consumer contracts

In the case of consumer contracts, courts will consider the purpose of the acquisition and the law will apply where the purpose is wholly or predominantly for personal, domestic or household use or consumption.

Consumer contracts are defined in section 23(3):

A consumer contract is a contract for:

  • a supply of goods or services; or
  • a supply or grant of an interest in land;

to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

The term individual is defined in the Acts Interpretation Act 1901 (Cth) to mean a natural person.

When examining section 23(3) it is necessary to consider the purposes for which goods or services were acquired. Unlike in other provisions of Australian Consumer Law, is not necessary for goods or services to be of a personal, domestic, or household nature rather it is the purpose for which they were acquired that will be relevant at the time that the contract was entered into.

The natural assumption is that businesses will consider the inclusion of business purpose declarations whereby purchases sign a declaration to state that goods or services are being purchased for business purposes. Section 25(1) gives an example of a term that may be unfair, termed that the limits or has the effect of limiting the evidence that one party can adduce in proceedings relating to a contract. Therefore, a business purpose declaration may itself be an unfair contract term.

Application to small businesses

The law was extended to apply to small businesses on 12 November 2015. Businesses were given 12 months to comply with the law and so, it applies to small business standard form contracts that were entered into, renewed, or varied after 12 November 2016. The law applies where a contract that is between businesses:

  • is for the supply of goods or services or the sale or grant of an interest in land;
  • at least one of the parties is a small business employing less than 20 people, including casual employees employed on a regular and systematic basis; and
  • the upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.

The business may be the purchaser or acquirer under the contract and the business may be conducted by a natural person, a body corporate, a partnership, a trust, or a joint venture.

Who to Contact for More Information

Please get in touch if you have any questions on the above.