In the realm of business and consumer transactions, contracts serve as the cornerstone of legal obligations and rights. However, not all contracts are created equal, and the law steps in to ensure a level playing field. Effective from 9 November 2023, significant changes to Australian Unfair Contract Terms will come into force, particularly targeting unfair contract terms in standard form contracts. Consequently, both consumers and small businesses must be vigilant to understand these changes and adapt accordingly.

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II. The Essence of a Contract

What Constitutes a Contract?

A contract is a legally enforceable agreement between two or more parties. When you purchase a product or service, you are essentially entering into a contract with the seller. Legal enforceability implies that if one party fails to fulfill their end of the bargain, the other party has the right to seek legal remedies.

Modes of Acceptance

Acceptance of a contract can occur in multiple ways:

• Signing a written document
• Verbally agreeing to the terms
• Actions that signify agreement, such as making a payment or clicking ‘I agree’ online

Importantly, businesses cannot force or pressure consumers into entering a contract. Such conduct is illegal and can lead to penalties.

III. Terms and Conditions: The Backbone of Contracts

Understanding the Fine Print

Terms and conditions outline the rights and responsibilities of each party involved. Therefore, it is crucial to read and comprehend these terms before accepting any contract. If certain clauses are unclear, consult a legal advisor for clarification.

Inalienable Consumer Rights

Certain consumer rights are inviolable, regardless of what the contract states. For instance, consumer guarantees cannot be overridden by contractual terms. This is a safeguard to protect consumers from potentially exploitative practices.

IV. Ending a Contract: What You Need to Know

Grounds for Termination

A consumer can generally terminate a contract without any charges if:

• The business has provided false or misleading information
• A service has not met consumer guarantees
• The consumer is within a cooling-off period

The Cooling-Off Period

The cooling-off period is a specific time frame during which a consumer can change their mind after making a purchase. This is especially relevant for goods or services bought through telemarketing or door-to-door sales.

V. Unfair Contract Terms: A Closer Look

Definition and Penalties

An unfair term in a contract is one that creates a significant imbalance between the parties involved, is not reasonably necessary to protect legitimate interests, and would cause harm if enforced. Changes to Australian Unfair Contract Terms effective from 9 November 2023 will introduce penalties for organizations that include unfair contract terms in their standard form contracts with consumers and small businesses.

Key Changes in the Law

The upcoming amendments will expand the scope of what constitutes a standard form contract and a small business contract. Here are the details of these changes to Australian Unfair Contract Terms:

1. Standard Form Contracts: The amendments will provide more guidance on how to decide whether a contract is a standard form contract. Terms that allow the business but not the customer to, for example, terminate the contract, vary key terms, or penalize the customer for a breach, may be considered to contravene the regime.
2. Small Business Contracts: The definition of small business contracts will also be expanded. Currently, small businesses are those with 20 or fewer employees and an upfront price of under $300,000 (or $1 million for contracts longer than 12 months). Post-amendment, small businesses will be those with 100 or fewer employees or an annual turnover of less than $10 million. For the ASIC Act, the upfront price payable should not exceed $5 million.
3. Penalties: The maximum penalties for breaches have increased significantly. Under the ACL, the greater penalty among $50 million, three times the value of the benefit obtained, or 30% of adjusted turnover during the breach period will apply. Under the ASIC Act, the penalties could go up to $7.825 million for companies and $1.565 million for individuals.

VI. Standard Form Contracts: The Presumption and Reality

What Is a Standard Form Contract?

A standard form contract is typically a pre-written document offered on a ‘take it or leave it’ basis. The law presumes that such contracts are standard form unless proven otherwise by the party that prepared the contract.

Criteria for Determination

Courts consider various factors to determine if a contract is a standard form, such as the bargaining power of the parties and whether there was any real opportunity to negotiate the terms.

VII. Small Businesses and Unfair Contract Terms

Current Protections

Small businesses are currently protected if they have 20 or fewer employees and the upfront price is under $300,000 (or $1 million for contracts longer than 12 months).

Upcoming Changes

From 9 November 2023, these thresholds will change. Small businesses will be covered if they have 100 or fewer employees or make less than $10 million in annual turnover.

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