Changes to law on unfair contract terms will come into effect on November 9, 2023.
From this date, proposing, using or relying on unfair contract terms in standard form contracts will be banned and penalties for breaches of the law will apply.
Other key changes relate to deciding whether a contract is a standard form contract and the definition of a small business contract.
The changes to law on unfair contract terms apply to:
* Standard form contracts made or renewed on or after 9 November 2023
* A term of a contract that is varied or added on or after 9 November 2023.
Where a term of a contract is varied or added on or after November 9, 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.
In addition to the existing factors, a court will consider whether the party who prepared the contract has also made other contracts that are the same or very similar, and the number of times this has been done.
The change to the law will also make clear a contract may be a standard form contract despite:
* The other party having an opportunity to negotiate changes to terms of the contract that are minor or insubstantial in effect
* The other party being able to select a term from a range of options determined by the party that prepared the contract, or
the party that prepared the contract letting a third party negotiate the terms of a different contract.
This means even if some consumers or small businesses are able to negotiate the terms of a contract issued to a broader group of consumers or small businesses, the contract may still be a standard form contract.
Types of terms that are or may be unfair
Contract terms are unfair if they:
* Cause a significant imbalance in the rights and obligations of the parties under the contract
* Are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term, and
* Would cause financial or other harm to the other party if enforced.
In deciding whether a term is unfair, a court can consider any matters it thinks relevant but it must consider the contract as a whole and whether the term is transparent.
The law sets out examples of terms that may be unfair, including:
* Terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract
* Terms that allow one party (but not the other) to end the contract
* Terms that penalise one party (but not the other) for breaching or ending the contract
* Terms that allow one party (but not the other) to change the terms of the contract.
For information about unfair terms in contracts for financial products and services, such as loans and financial advice, contact ASIC, which regulates these types of contracts.
Find out more at accc.gov.au.