As a small business owner it can be a demanding task to stay on top of your legal obligations to your customers, however it is a vital aspect of running a business. Many businesses rely on what is known as a ‘standard form contract’ when undertaking a transaction with a consumer.
A ‘standard form contract’ is one, which is formed where the consumer has no real opportunity to negotiate the contract and its terms and is required to sign before the business will provide goods or services to them. Some examples of ‘standard form contracts’ are mobile phone contracts, contracts for the supply of internet services, or even a costs agreement provided by your lawyer.
As a business owner you must ensure that your ‘standard form contracts’ do not contain any unfair terms. Unfair terms are detailed in the Australian Consumer Law (“ACL”) and enforced by the Australian Competition and Consumer Commission (“ACCC”).
Under the ACL a court can determine that a term of a ‘standard form contract’ is unfair and therefore void, upon application by a consumer or by the ACCC. This section of the ACL applies to consumer contracts, which are those for the supply of goods or services to an individual who acquires them for personal, domestic, or household use.
In determining whether a contract term is unfair the court will consider if it:
- Causes a significant imbalance in the parties’ rights;
- It is not necessary to protect the legitimate interests of the supplier; and
- Relying on it would cause detriment to the consumer.
If these three elements are present in the contract term then it can be considered unfair to the consumer.
An example of an unfair term can be found in the recent case of ACCC v Bytecard. Bytecard is better known as NetSpeed Internet Communications and is an ISP that provides internet connectivity, domain registration, hosting and web design services to consumers.
In this case the ACCC commenced action against Bytecard over their ‘standard form contract’ as it had the effect of:
- Allowing Bytecard to vary the price of its services under an existing contract without providing the consumer to terminate the contract;
- Requiring the consumer to indemnify the company in all circumstances, even where the breach of the contract and the subsequent liability, loss or damage may have been caused by the company itself; and
- Allowing Bytecard to terminate the contract at any time with no notice, cause or reason to be given to the consumer.
The court found in this case that unfair terms were present in Bytecard’s ‘standard form contract’ due to all three conditions detailed above being present. The unfair terms were rendered void by the court and Bytecard was ordered to contribute to the costs of the ACCC in pursuing the matter.
Rod Sims, Chairman of the ACCC, said after the decision that this case, “acts as a warning to businesses. The ACCC won’t hesitate to take action against businesses who continue to include unfair terms in their standard form consumer contracts… this matter is a timely reminder for all businesses to review their consumer contracts to ensure that potential unfair contract terms are removed or amended.”