Unfair contract law is set to expand in 2023 meaning it should be on your radar if you have any contracts with small businesses.
Two of the biggest changes which will come in on 9 November 2023 are:
- Expanding who the law applies to – now the protections will apply to contracts with small business which employ less than 100 staff or have an annual turnover of less than $10 million, and will apply regardless of the value of the contract.
- Including penalties – the maximums for individuals (yes, this means sole traders) increasing to $2.5 million and for organisations being up to $50 million, or up to 3x the value of the benefit from the unfair contract terms or up to 30% of turnover during the breach period, whichever is higher.
At the moment, the unfair contract law protections apply to small businesses which employ less than 20 staff and the contract has a value up to $300,000 or is for more than 12 months and the upfront price is less than $1 million.
So what is an unfair contract term?
Unfair contract law involves looking at a term and deciding whether it is balanced, reasonably necessary and considering what detriment is caused if it’s applied.
It is key that small business contracts are considered as a whole.
“An apparently unfair term may be regarded in a better light when seen in the context of other counterbalancing terms. For example, a potentially unfair term may be included in a consumer contract but may be counterbalanced by additional benefits — such as a lower price — being offered to the customer.”ACCC: Unfair Contracts Law: A guide for businesses and legal practitioners
In September 2023, ASIC commenced proceedings against PayPal Australia over its standard form contracts with small business customers which it says contain an unfair contract term.
According to ASIC, the contract term gives PayPal business account holders 60 days to notify PayPal of any errors or discrepancies in fees that PayPal has charged them, or else accept those fees as accurate.
The term appears in PayPal’s User Agreement, one of several documents that form the contract between PayPal and its Australian business account holders.
How do Courts decide if a contract term is unfair?
When deciding whether a contract term is unfair, courts look at:
- Bargaining power
- Any discussions or negotiation about the contract before it is signed
- Whether it is a ‘take it or leave it’ type contract
- Whether it allows one party to avoid or limit their responsibilities
- Whether it allows one party to change the contract terms even after it’s signed
- Whether one party has a significant advantage over the other
- Whether the term is necessary to protect legitimate interests
- The impact of the term financially and otherwise if it was enforced
A recent case involving Fujifilm gives us a great shopping list of examples of unfair contract terms as a starting point in figuring out what an unfair contract term looks like.
Fujifilm examples of unfair contract terms
- Automatic renewal terms
Allowing the contract to automatically renew unless the customer cancelled a certain number of days before the end of the contract term was unfair and void.
- Disproportionate termination terms
Allowing Fujifilm to end the contract in more situations than their customers were allowed (i.e. there weren’t any situations where the customer could end the contract) was unfair and void.
- Liability limitation terms
Limiting Fujifilm’s exposure to liability but not giving the customer a corresponding limit was unfair and void.
- Termination payments
Exit fees which were set by Fujifilm however and whenever they wanted to set them was unfair and void.
- Unfair payment terms
Requiring customers to pay for things regardless of whether Fujifilm ended up delivering them and before they were delivered was unfair and void.
- Unilateral variation terms
Giving Fujifilm the ability to change the terms and conditions including prices even though the contract had been signed was unfair and void.
Fujifilm was ordered to:
- Change their contracts
- Not enforce unfair terms in their existing contracts
- Check 34,000 contracts and write to all of their customers to tell them about the court order
- Publish the court order on their website
- Introduce a compliance program
- Pay costs
What should you do now?
All businesses should be reviewing their contracts before 9 November 2023 and making sure they understand the law and how it applies to them. Of course, unfair contract law is a specialised area and legal advice is recommended before you make the final call. If you don’t feel like publishing an apology on your website, or writing to all of your customers telling them you stuffed up their contracts this year, then consider sending us your standard form contracts to us to give you a quote.
There are other laws that can apply to make terms illegal or apply in a different way to how they’re written. So it’s best to get an expert involved.
We also represent many individuals and businesses dealing with suppliers who offer them unfair contracts or trying to enforce unfair contract terms. If you’d like to know how we can help, book a free 15 minute Curiosity Call using the Book an Appointment button above or via this link https://calendly.com/curiumlegal/
The Fujifilm case citation is Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd  FCA 928 and can be read in full here: https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2022/2022fca0928