Unfair Contract Terms in light of Fujifilm Decision

Following on from our article on the Government’s proposed ramping up of the unfair contract terms regime in the Australian Consumer Law, today we look at some examples of standard form contract terms that may breach the current and the anticipated legislation.

Recall, this regime currently applies to standard form contracts where a party is a consumer or small business and where the value of the contract is no more than $300,000 (or $1 million if the contract extends beyond 12 months). A contract term may give rise to concerns if it:

• significantly imbalances the parties’ rights and obligations under the contract;

• is not a reasonably necessary term to protect the parties’ legitimate interests; or

• it would cause a detriment (financial or otherwise) if it were relied upon.

Where the Court finds a contract term to be unfair the term may be rendered unenforceable. The remainder of the contract still applies, to the extent possible.

Consider the types of contracts you have with your suppliers and customers. Do they contain any of the following clauses, which are often flagged under this legislation?

• automatic renewals;

• unilateral limitation of liability;

• uneven rights of termination;

• termination fees; or

• unilateral rights of variation.

If so, it may be time to revisit your contracts. Consider the potential cost and risk to your business of renegotiating unenforceable contracts and remember that if the Government legislative update passes then the outcome could also include a monetary fine.

The Federal Court recently held that over 300 terms in 34,000 small business contracts entered into with Fujifilm entities were unfair and could not be upheld. Complying with the Court’s numerous orders imposes a significant financial and administrative burden on Fujifilm.

The message here is to be proactive. Contact Lang Legal for a no obligation discussion about the contracts you send and the contracts you receive.