Real consequences for unfair terms in contracts
Latest update 23/10/2023 | Last update 23/10/2023 | First published 23/10/2023 on TradeBox's website, 06/09/2023 on Aitchison Reid's client newsletter
This guidance article was provided to TradeBox Australia by Aitchison Reid Building and Construction Lawyers, and written by its director, Fionna.
One fine day
There’s a road in Cleveland that I may or may not have tended to drive 60km per hour on. In my defence, I actually thought it was a 60km per hour road.
However, a number of years ago I was driving down this road at my normal speed with about five cars in front of me all doing their version of their normal speeds. Then in the distance ahead I just noticed something stir in the shadow of a tree.
It was one of those gorgeous hot Queensland days, where the shadows are so dark that they almost look black. I looked again and there definitely was someone under the tree.
A couple of seconds later I could see a police officer with a radar camera. It was too late. Not just for me, but for all of the cars in front of me and behind me too. We all got ushered to the side of the road while the police officers gave us a talking to.
I can’t remember if I was given my fine straight way, or if it arrived a week or two later.
I do however remember the lesson. NEVER drive 60km down that road ever again! No matter how many cars sit behind me now, I slow down and sit at 50km and I always look to see if there are police under that same tree.
What I had was a consequence.
And it changed my behaviour.
As adults, the consequences that actually change our behaviours the most are generally financial.
Without a financial consequence, we adults are as good as teenagers being asked to voluntarily do jobs around the house.
So how does this relate to unfair terms?
It has been a breach of Australian Consumer Law to have unfair terms in standard form consumer contracts, since 2010. However, the most that a consumer (and later a small business) or a regulator could do about an unfair term, was apply to the court and have the unfair term made void.
The court could not even force the removal of unfair term from future standard form contracts.
So, what happened?
Pretty much nothing. There just wasn’t a big enough consequence for business, especially big business, to remove their unfair terms from their standard form contracts.
But hold on because in November 2022, Australian Consumer Law changed. And on 9 November 2023[A1] those changes come into force, including very large financial consequences!
The consequences
If there is an unfair term in a standard form contract entered into or varied on or after 9 November 2023 with a consumer or small business:
the consumer, small business or the regulator can apply to court to have the term declared unfair and the court may grant:
an injunction restraining the party from acting upon the term;
compensation to the consumer or small business;
an order to provide redress to non-party consumers or small businesses; and
any other orders the court thinks appropriate.
the regulator can apply to court for financial penalties against the businesses providing unfair terms being the maximum of:
$50 million;
three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
the regulator can apply to court for financial penalties against individuals providing unfair terms with the maximum penalty being $2.5 million.
So what does this mean for you?
As a consumer or small business?
Think of all those contracts that you have signed over the years - whether it is with your phone provider, electricity provider or even your job management system. Most of those contracts were tick and flick agreements where you had no choice but to agree to their lengthy and very onerous unfair terms. Well, from 9 November 2023, if you enter a new agreement or you vary an agreement, that provider is required to provide actual fair terms.
For those of you who are subbies, you will understand the standard commercial builder’s subcontract is the master playbook on unfair terms. In fact, if you took out all of the unfair terms out of some commercial subcontracts, there wouldn’t be much left!
This has already started to change with some builders rewriting their subcontracts with actual fair terms. For subcontractors this could be the start of a new era.
And as a small business or consumer, these law changes are great.
As a business owner?
The likelihood of the regulator taking every business with unfair terms to court and applying for financial penalties is very very unlikely. The regulator is more likely to focus on the bigger players, so it can get some very big scary penalties awarded that make rest of the business community wake up, pay attention and comply with the law.
However, big players generally get proactive legal advice. Further, the big players like Chrisco, Fuji, and JJ Richards & Sons Pty Limited have already been the subject to proceedings by the regulator for unfair terms. So it may be that the regulator will choose to look further down the supply chain after 9 November 2023, to smaller players to find worthy examples of unfair terms.
Even if you are not within the sights of the regulator, if you provide your own terms, you are still not out of the woods. That is because your customers can apply to the court too to be compensated for their losses caused by the unfair term/s you have in your standard form contract.
Previously, we didn’t see a lot of consumers applying to the court to make unfair terms void, mainly because there was no real financial benefit for doing so. However, now there is a financial benefit.
Therefore, this may be an area where we see a lot more action emerge. Given, the last three years that we have all been through, with so much media attention on the construction industry and the unfair treatment of consumers, I think we are also starting to see a lot more clued up and lawyered up consumers in the market. The Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99 is a great example of this.
So this is not a time to underestimate your customers or their right to fair terms.
So, what can you do to protect yourself?
It’s time to look at those contracts and trade terms you use in your business. That’s right, your trade terms have just as much chance of containing an unfair term as a document labelled “contract”.
You may recall from one of my previous emails that as we are so used to unfair terms in the construction industry, I think it will be challenging for anyone in the industry to spot all of their own unfair terms.
So basically, there are two options:
you have your terms reviewed or audited and then take corrective action if you have unfair terms; or
you bin your current terms and find new contracts or trade terms that have been updated with fair terms.
End notes
[A1] In the earlier version of this guidance article published 6 September 2023, the date for when Australian Consumer Law changes come into force was incorrectly stated as 10 November 2023, when in fact it is actually coming into force on 9 November 2023.
Please note
This article was written by Fionna C A Reid, director of law practice Aitchison Reid Building and Construction Lawyers (Aitchison Reid) for TradeBox Australia (TradeBox), so that TradeBox can share the article as guidance with tradies and subbies. Use of this article is subject to TradeBox’s terms and conditions of use stated here: https://www.tradebox.com.au/terms-and-conditions-our-ar-content
Aitchison Reid, like TradeBox, is based in Queensland.
This article has been drafted in reference to building and construction trade businesses in Queensland only.
TradeBox is not a law practice. This article is not legal advice and is for guidance purposes only. Seek advice on matters of interest arising from the commentary, information and guidance in this article.
Aitchison Reid’s content for this article was released to TradeBox in September 2023. Individual liability limited by a scheme approved under professional standards legislation.
