Unfair Terms in a Standard Form Contract

As a business owner, you probably enter into contracts every day. Contracts are crucial as they document and govern the relationship between your business and various parties. It is common to offer the parties you interact with the same or similar contracts. These are examples of a standard form contract.

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While standard form contracts assist business efficiency, it is essential to take into account the terms of the contract and determine whether or not they are fair. This article explores unfair terms in standard form contracts, including how to identify and avoid them.

What is a Standard Form Contract?

Before considering unfair terms, it is important to first understand what constitutes a standard form contract. There is no statutory definition for a standard form contract. However, certain factors must be taken into consideration. Those factors include whether:

• one of the parties have all, or most of, the bargaining power in the transaction;
• one party prepared the contract before any discussion between the parties about the transaction occurred;
• the other party was required to either accept or reject the terms of the contract in the form in which they were presented;
• another party had the opportunity to negotiate the terms of the contract; and
• the terms of the contract take into account the circumstances of the transaction or other party.

A contract is considered to be standard form if:

• it is for the supply of goods, services, or land;
• one (or both) of the parties is a small business with fewer than 20 employees; and
• the contract price is not higher than $300,000 (or $1 million if the contract is for more than one year).

A standard form contract may not always be called standard form. It may also be known as a boilerplate contract, a contract of adhesion or even a take it or leave it contract. Despite the different names, it is the types of clauses that determine whether the contract is a standard form.  

ACCC v JJ Richard & Sons Pty Ltd

For a long time, the Australian Competition and Consumer Commission (ACCC) has been clamping down on unfair contract terms imposed on consumers by bigger businesses. Recently, the Australian Consumer Law (ACL) has broadened that scope to include contracts involving small businesses.

In late 2017, the ACCC brought a case against JJ Richard & Sons Pty Ltd. They found some overly-strict terms in JJ Richard’s standard contract. Those terms gave the company the freedom to increase prices, change the scope of work and prohibit customers from ending the contract in certain circumstances. The ACCC argued that the standard contracts gave JJ Richard too much freedom and imposed too many restrictions on small businesses.

What is an Unfair Term?

Whether you are on the giving or receiving end of a contract, there are going to be strict clauses. They are strict to ensure that there is as much clarity as possible about the relationship, rights, obligations and expectations of the parties. However, these strict terms may, in some circumstances, be unfair. According to the ACCC, unfair contract terms will:

• let only one party avoid their obligations under the contract;
• allow only one party to end the contract;
• punish only one party for breaching any terms; and/or
• enable only one party to change the contract.  

Ultimately, a contract will have unfair terms if it is overly restrictive on one party and provides the other with too many liberties. You should not impose unfair terms in standard form contracts onto other parties. Nor should you accept unfair terms. Courts will not accept clauses if they are unfair, place harsh obligations on the business or are otherwise unreasonable.

Key Takeaways

Contracts are an essential part of conducting business. It is vital to ensure that they contain terms and conditions that are fair to other parties. There is a delicate balance between protecting your business and taking advantage of other parties. The issue of unfair contract terms is one of which to be especially aware if your business is using standard form contracts. Therefore, it is best practice to have a lawyer look over your standard form contract to determine whether any of the terms are unfair or unreasonable.

Jessica Anderson
Senior Lawyer
legalvision.com.au