Changes to Unfair Contract Terms in Effect from 9 November 2023

Introduction

On November 9, 2023, significant changes to unfair contract laws have come into force, impacting businesses and consumers alike. These amendments aim to improve fairness and transparency in contractual agreements, addressing the power imbalances that can exist in the standard terms in contracts that are the adopted by many suppliers of goods and services. The reforms are intended to protect parties from unfair terms.

Background

Unfair contract terms can disproportionately favour the supplier over the consumer, leading to an imbalance in negotiating power. It is often the case that a supplier will not agree to make any changes to their standard terms adopting a “take it or leave it” position. Recognizing the need for reform, the changes introduced by the amendments strengthen consumer and small business protections giving more scope to negotiate fairer terms.

Key Changes

Extended Coverage

The new laws broaden the scope of protection by extending coverage to a wider range of contracts. While the previous rules primarily focused on consumer contracts, the revised framework will also include small business contracts. This expansion aims to provide additional safeguards for small enterprises facing potential imbalance in negotiating power through unfair contract terms.

Strict Requirement for Compliance

Standard form contracts, often used by many suppliers face greater scrutiny under the changes. The amendments aim to address concerns that these contracts may contain terms that are unilaterally imposed and not subject to negotiation. Businesses will need to ensure that their standard form contracts comply with the updated laws to avoid legal repercussions.

Criteria for Defining Unfair Terms

The criteria for determining unfair terms have been refined. A term is considered unfair if it causes a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by the term and would cause detriment if enforced. This definition is intended to give clarity and provide greater guidance for both businesses and consumers in identifying unfair contract terms.

Consequences of Non-Compliance

The consequences for businesses that fail to comply with the new laws will be subjected to substantial penalties under the Competition and Consumer Act 2010 and the ASIC Act 2001, with each unfair term forming a separate contravention. Courts will have the authority to declare a contract term void and unenforceable, in addition to imposing financial penalties on businesses that continue to rely on unfair contract terms in their dealings with consumers. This increased accountability is designed to discourage the inclusion of unfair terms and encourage businesses to introduce fairness in their contractual relationships.

Conclusion

The changes to unfair contract laws effective from November 9, 2023, aim to promote fairness and transparency in contractual relationships.

It is recommended that businesses seek legal advice to ensure their contracts comply with the updated laws. Contact Baker Love Lawyers for assistance.

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