Many consumers don’t have the time or patience to read the long lists of terms and conditions that often accompany the products and services they buy, but at least they can take comfort knowing they will soon be better-protected if any of those contracts are not fair.
That’s because the Australian Consumer Law has recently been amended to introduce penalties for businesses that present contracts containing unfair terms.
Standard form contracts provide a cost-effective way for businesses like telcos, gyms, car rental companies and travel agencies to deal with significant volumes of customers. However, because these contracts are largely imposed on a ‘take it or leave it’ basis, consumers often have little to no chance to negotiate.
An example of an unfair contact term in the travel industry may be a clause that requires the consumer to pay excessive compensation or cancellation charges regardless of whether the service is cancelled by the consumer or travel operator. Businesses should consider limiting any fees to the reasonable costs associated with providing the service for that particular consumer, otherwise they may be seen as penalties, which may be considered unfair contract terms.
Previously, a court could only make a final decision on a whether a contract term was unfair and therefore void, but could not impose penalties on businesses that included them in standard form contracts.
All that changed in November 2022, when legal changes to introduce penalties and other changes relating to unfair contract terms passed Federal Parliament. Businesses now only have a few months left to review and update their standard form contracts to ensure they are fair and balanced before the penalties will apply.
From 9 November 2023, the maximum penalties for businesses will be the greatest of $50 million; three times the benefit obtained from the conduct; or, if that can’t be determined, 30 per cent of the relevant turnover during the breach period. The maximum penalty for individuals will be $2.5 million.
To identify an unfair contract term, consumers can consider whether it causes a significant imbalance between their rights and obligations versus those of the business. Also think about whether the term is reasonably necessary to protect the legitimate interests of the business, how transparent it is, and whether the term would cause you detriment (financial or otherwise) if the business was to enforce it.
