What’s an Unfair Contract?

Contracts are intended to be a mutually beneficial agreement between two or more parties. But what happens if one party benefits from the contract significantly more than the other? Or if the terms of the contract are detrimental to one party? Unfair contracts mostly apply to standard form contracts (a type of unilateral contract), that is, contracts which are issued to multiple people by one business. These include phone and gym membership contracts and mortgages, amongst others.

The Australian Consumer Law (ACL) requires that a contract signed between a business and consumer be on ‘fair terms’, that is, it cannot disproportionately benefit the business. There have been cases where a consumer has unknowingly forfeited many of their rights, only to suffer later on. These can include clauses which allow for:

  • A Unilateral increase in price
  • Unilateral termination rights
  • Limited Liability
  • Unilateral Renewal

It’s easy to glance over the fine print of a consumer contract when you sign it, or to skip the terms and conditions to the page where you tick (or click) ‘I agree’. However, it is important to bear in mind, even if you do sign a contract such as this – if the terms are inherently unfair then it will not be enforceable.

When will a Court Determine a Contract to be Unfair?

Unfair contracts are those which significantly favour one party over another. Most often, contracts which are favourable to one party but not the other are ones where the parties do not enter on equal footing in the first place.

If you think that a contract you have entered into may be unfair, first ask yourself the following:

  • Does the term of the contract cause a significant imbalance between your rights and those of the business?
  • Is the term reasonably necessary to protect the legitimate interests of the business?
  • Would the term be detrimental to you if the business tried to enforce it?
  • How transparent is the term of the contract? Are they clear from reading the contract?

Enforcing Consumer Rights

If you have answered yes to any of the questions above, you may be able to take action to have the contract revoked or receive damages for any losses you have suffered. However, it must be mentioned that these standards do not apply to insurance contracts, constitutions or contracts for the shipping of goods.

If you Run a Business

Conversely, if you run a business (or are intending to start a business) and will be issuing standard form contracts, it is important that you have a contract lawyer review all your proposed terms to ensure that they comply with ACL standards and will be enforceable.

Always keep in mind that every transaction is a balance between the commercial rights of your business and the rights of the consumer. If you try to tip the balance in favour of your business to the detriment of customers, customers can take action to have the contract set aside, or even be compensated for any losses they incur.

Need further advice? Contact a LawPath Consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

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