Contracts are very common in our lives. Anyone living in Australia will deal with contracts — from major things such as buying a home or a business, down to small things such as subscribing to Netflix, ordering a cup of bubble tea, or tapping an Opal card. These are all contractual acts.

Contracts can be extremely complex. Anyone who has bought a home may have experienced the sense of despair when facing a contract 20 cm thick. Contracts can also be very simple — so simple that buying a cup of coffee can conclude one before you even realise it.

From a legal perspective, a contract is an extremely complex legal relationship, and contract law is a course every law student must take at the beginning of their legal studies.

One of our regular areas of practice is helping clients with contract matters, including drafting, reviewing, interpreting, amending, and negotiating various contracts, as well as handling contract disputes.

However, the vast majority of contracts we encounter day-to-day do not involve a lawyer; they are entered into directly between ourselves and the other party (sometimes without any traditional signing process at all).

Today we will discuss a very common type of contract — the standard-form contract — and the unfair terms that may appear within it. We hope that after reading this article you will have a sharper eye when signing contracts in the future, so you can protect your own interests.

What is a standard-form contract

A standard-form contract is prepared by one party, and the other party has little or no opportunity to negotiate the terms — in other words, standard-form contracts are usually offered on a "take it or leave it" basis.

Examples include mobile telecommunications, utilities, car rental and many other services. As consumers, we are typically presented with a standard-form contract and have almost no opportunity to alter its terms. Businesses often use standard-form contracts with consumers to improve efficiency, but these contracts may well infringe on your rights.

Unfair terms in standard-form contracts

Standard-form contracts may contain unfair terms — for example, a clause stating that only one party may change the contract while the other must comply. Such clauses can substantially harm the rights of one party and place them in an unfair position.

Elements of an unfair term

An unfair term contains the following three elements:

1. It would cause a significant imbalance in the parties’ rights and obligations under the contract;

2. It is not reasonably necessary to protect the legitimate interests of the party who would benefit from it;

3. It would cause detriment to a party to the contract if it were applied or relied upon.

Examples of typical unfair terms

Let’s look at some typical examples of unfair terms.

1. Terms that allow a business to change the contract without the consumer’s consent

A term that allows one party to change the terms of the contract without the other party’s agreement may be considered unfair.

Example:

TPG’s standard-form consumer contract included a clause allowing it to change the subscription fees charged to consumers for their services without providing notice. The clause was worded as follows: “You must pay all subscription fees applicable to the plan you have signed up for. You understand that we may, from time to time, change all fees and charges without notice. Please note that we will not increase the subscription fee for your plan before the end of your minimum subscription period.”

This wording was problematic and was very likely to be treated as an unfair term. Following intervention by the ACCC, TPG agreed to

remove the part of the clause allowing it to unilaterally change subscription fees. The amended clause now reads:

“You must pay all subscription fees applicable to the plan you have signed up for. Failure to pay subscription or usage fees will result in suspension or termination of your service.”

2. Terms that unfairly restrict a consumer’s right to terminate the contract

Terms that seek to “lock” a consumer into a long-term contract can be problematic where the business has failed to perform the contract, failed to meet the consumer’s expectations, or provided poor customer service.

Example: A solar company’s standard-form contract provided that, once installation of the service had commenced, the consumer could not simply terminate the contract even if the business had delivered the “essential” elements of the contract — they could only seek damages as a remedy. The clause was worded as follows: “After we have certified that installation of the service has begun, you may not cancel or otherwise terminate this agreement, or revoke any authorisation granted under this agreement.”

This clause restricted the consumer’s right to terminate the contract and was very likely to be considered an unfair term. A supplementary clause has now been added after it, worded as follows: “For the avoidance of doubt, nothing in this agreement affects your right to terminate this agreement under section 259 of the Australian Consumer Law.”

3. Terms allowing suspension or termination of services provided to the consumer under the contract

Example:

The standard-form contract used by telecommunications provider TPG gave the business broad rights to suspend or disconnect a customer’s service at any time, without providing notice to the consumer. The term was worded as follows:

“If we have reasonable grounds, we may at any time, without notice, suspend or disconnect your access to some or all of the services, or delete or refuse your access to your data.”

This clause has since been removed.

4. Terms preventing a consumer from relying on representations made by the business or its agents

Attempts to exclude a business’s liability for statements made by it or its agents to the consumer may be unfair.

Example

A telecommunications business, Dodo, included the following clause in its standard-form contract: “You acknowledge that you have entered into this agreement entirely at your own request, and that you are not relying on any statement, representation or promise made by us or on our behalf that is not expressly set out in this agreement.” In other words, any oral representation made by the business or its agents before the contract was signed, but not reflected in the written contract, would be of no effect. For example, if during negotiations the other party promised a particular discount but it was not reflected in the contract, that discount could be treated as ineffective. This clause may be considered an unfair term and has now been removed.

Remedies for unfair terms

So what are the legal consequences if you have signed a contract containing unfair terms? First, we must be clear that only a court can determine that a term is unfair — a term is not automatically unfair just because it appears obviously so. For example, if A and B enter into a standard-form contract and one clause is plainly unfair to B, but A refuses to acknowledge this, then the matter must proceed through the judicial process and the court will decide whether the clause is an unfair term.

The court will consider the contract as a whole when making this determination. Once the court finds a clause to be an unfair term, that clause is void from the outset and neither party is bound by it. However, the remaining terms of the contract remain valid, and both parties continue to be bound by them.

The purpose of this article is, through the examples above, to remind readers to pay attention to the less obvious terms that may work against their interests before signing a contract. If you identify what appears to be an unfair term, communicate with the other party promptly to have it amended, or decline to sign. Such terms are often very discreet and hard to spot, and once a contract dispute arises they may seriously disadvantage you. Even if the court ultimately declares the term void, the significant cost in time and money may still exceed what you can bear.

We particularly recommend that you engage a professional lawyer to review any large-value or complex contract before signing. Aside from the home-purchase and business-purchase contracts that most people are familiar with, many other complex contracts — such as renovation contracts and long-term lease agreements — are generally provided by the other party as standard-form contracts. If you encounter such a standard-form contract and it could have a significant potential impact on your interests, we strongly recommend that you consult a lawyer to help avoid potential future legal risks.