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LEGAL UNFAIR CONTRACT TERMS Reviewing your contracts could save you from hefty fines. BWy Gladwin Legal Partner Rosalyn Gladwin. hen running a business, • It would cause detriment to a party, contracts exchange whether financial or otherwise. hands almost as often as products. They form such To whom does it apply? a fundamental part of life as a retailer, Unfair contract terms will apply only • The meaning of ‘standard form contract’ will be clarified to take into factors such as: • Whether a contract template is used repeatedly. • Whether a small business had the opportunity to negotiate a contract. • Clauses that include industry-specific requirements already contained in legislation will be exempt. Under the current law, only terms which are expressly permitted by legislation are exempt. Final thoughts In the past, the ACCC has fought for an expansion to Australian Consumer Laws. We expect these changes will be a strong enforcement priority. The changes will be implemented by legislative amendments at a date yet to be determined. Nonetheless, we advise all retailers to prepare and review all their standard term contracts and standard terms to see if they will be captured by these amendments. governing every business relationship, including those with suppliers, distributors and customers. With each contract, it’s critical to understand what the agreement involves and whether the terms of the agreement are balanced between the parties involved. While many retailers may have conducted a compliance check on their contract terms at the contracts’ inception, new changes to the Australian Consumer Law may now classify these terms as unfair and unenforceable, potentially exposing your business to penalties. We provide a refresher to unfair contract terms below and sum up the proposed changes to make sure you’re ready to tackle all your business contracts. Summary In the past, contracts with unfair terms would not face any civil penalties. Rather, if a term were unfair, it would simply be void or would need to be reworded. However, on 10 November 2020, the federal government announced plans to change the laws surrounding unfair contract terms, including introducing civil penalties if these terms are present in your contracts. While the government has not yet provided a date for when these changes will come into effect, the announcement serves as a clear reminder to businesses to review their standard form contracts and ensure there are no unfair contract terms included. What is an unfair contract term? A contract term is unfair if it satisfies all the conditions below: • It would create a significant imbalance in the parties’ rights and obligations under the contract. • It is not reasonably necessary to protect the legitimate interests of the party who would benefit from the term. to standard form contracts that are either ‘consumer contracts’ or ‘small business contracts’ – that is, a contract where at least one party is an individual who acquires goods or services for personal use, or at least one party is a business that employs fewer than 20 people and the upfront price payable under the contract is below certain monetary thresholds. A standard form contract means a template contract form of one party, where the other party is not given the opportunity to negotiate it. What are the proposed changes? The proposed changes include the following: • Unfair contract terms will be unlawful and subject to civil penalties. • Courts will now be able to choose a remedy for the aggrieved party if a standard form contract is found to have unfair contract terms. • The definition of a ‘small business’ will be expanded to include significantly more businesses. • Proposed changes will classify a ‘small business’ as one with fewer than 100 employees or annual turnover of less than $10 million, whereas currently, a ‘small business’ is one with fewer than 20 employees; and either an upfront price payable under the contract of under $300,000; or $1 million, if the contract is over 12 months. • Both ‘non-party consumers’ and ‘non-party small businesses’ will have remedies available to them for loss or damage suffered as a result of an unfair contract term. Current Australian contract law does not clarify that non- party small businesses are able to access these remedies. • If a comparable term used in similar circumstances has already been declared as unfair, there will be a rebuttable presumption that the disputed term will also be an unfair contract term. About Rosalyn Gladwin Rosalyn is the principal of Gladwin Legal, being an expert in all facets of retail law, including commercial and corporate law and retail leasing. She has extensive legal experience in the retail industry, having worked in a national ASX listed retailer for seven years as well as in highly regarded national and international law firms. About Gladwin Legal Gladwin Legal is the law firm for retailers. As experts in retail law, the firm understands the legal matters that challenge retailers daily. Its areas of expertise include retail and commercial leasing, supply and distribution agreements, intellectual property, e-commerce and IT agreements, sale of business and competitions and trade promotions. Get in touch at gladwinlegal.com.au. 48 RETAIL WORLD MAY, 2021