Recent changes to unfair contract terms laws in Australia will materially change the way that you prepare, negotiate and enforce standard form contract terms. For an overview of the recently announced changes, click here.
Let’s get into what the changes will practically mean for you.
The current state of play
Currently, under the Australian Consumer Law (set out in Schedule 2 of the Competition and Consumer Act 2010), a contract term in a standard form contract with a consumer or small business will be unfair if it:
1. would cause a significant imbalance in the rights and obligations of each party;
2. is not necessary to protect the legitimate interests of the party with the advantage; and
3. leads to detriment (financial or otherwise) to the other party if the term is applied.
Currently, only consumers and small business (less than 20 employees) enjoy protection from unfair contract terms, provided that the value of the contract is beneath a certain threshold.
If a term is found by a Court to be unfair, then that term will be declared void and will be deemed unenforceable. This will continue to be the case under the soon-to-be-expanded regime.
So what will change?
The most significant changes coming to the unfair contract terms regime are the new penalties and the expansion of the definition of “small business”. Under the updated regime, any business with less than 100 employees and an annual turnover of less than $10m (irrespective of the value of the contract between the parties) will enjoy protection against unfair contract terms. The new regime will have teeth for enforcement and capture a much larger subset of businesses in its remit.
With so many new businesses enjoying protection from unfair contract terms, coupled with the threat of penalties, you can expect a lot of consumers and small businesses to be alleging, rightly or wrongly, that your standard form contract includes unfair contract terms.
What should you do to prepare?
Most standard form SaaS contracts currently in use are very 1-sided, littered with unfair contract terms. This is because the lawyers that prepared these contracts loaded them up with terms favourable to their client; at a time when the unfair contract terms regime did not include penalties, and only protected a small subset of businesses.
You should expect that until case law dealing with enforcement of the new regime takes shape, there will be a lot of wild claims by consumers and small business about what is and is not an unfair contract term. Many of these claims will be misguided.
If you offer SaaS services to consumers or small business, you should conduct a review of your standard form contracts now, so that you can update them where necessary to ensure that they are free of unfair contract terms before the new laws come into effect. This will give you the comfort that your house is in order, and give you the confidence to push back against unfounded claims that your standard form contract includes unfair contract terms.
You should expect that your consumer and small business customers will be aware of the changes and will, unsurprisingly, be feeling empowered by the new protections, which will enable them to compel big and small operators to agree changes to standard form contracts like never before.
If you want to discuss your standard form contracts or have them reviewed and updated in preparation for the updated unfair contract terms regime, please get in touch.