Unfair Contract Terms

From 1 July 2010 new trade practices legislation has been introduced regarding unfair contract terms in standard form consumer contracts. These changes will affect all businesses, large or small, alike.

These changes apply to standard form contracts that are generally not open for negotiation and are produced to a consumer by a business in order for the supply or sale of goods and services – generally for that consumer’s personal or domestic use or consumption. This may include terms and conditions of trade, credit polices and the like.

There seems to be a presumption that any ‘consumer contract’ is deemed to be a standard form contract (thus attracting these new provisions) unless proven otherwise by the business relying on the terms of the contract. The reforms even go so far as suggesting that businesses must be prepared to provide sufficient evidence to show that the contract is not standard form. Businesses must be wary of this.

To determine whether a term is unfair is highly subjective and will be judged on a case by case basis. There is no magic formula and a determination will depend on (among other things) the negotiations surrounding the terms, the bargaining power of each party, industry standards and of course the subject matter of the Contract.

The general tests to determine an unfair term are as follows:
· Does it cause a significant imbalance in the parties’ rights and obligations;
· Is it not reasonably necessary to protect the legitimate interests of the party who is advantaged by the term; and
· Does it cause detriment to a party if the term were to be applied or relied on.
These limbs must all be proven for a court to determine a term unfair.
The true scope of the reforms is yet to be properly tested to see whether the changes have merit.

It would be hard to speculate at this stage how stringently the courts will enforce these provisions, however businesses should seek legal advice as to any consumer contracts they are currently using and any potential unfair terms that may be lurking inside.

Upon sighting your terms and conditions or other such standard form contracts, Hatzis Lawyers can provide you with a fixed fee quote in order for one of our commercial solicitors to review the document and advise you in this regard.

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