Unfair contract terms are ‘fiendishly difficult’, says lawyer

New unfair contract term laws introduced by the federal government that have been in place for just over 12 months now are causing “a raft of issues”.

When the federal government introduced new unfair contract term laws, the goal was to help small businesses that often lacked the resources and bargaining power to negotiate terms in standard form contracts with powerful entities. Another key part of the laws was, of course, the penalties that were introduced for companies that have put unfair terms in their contracts.

However, these new laws appear to be “catching people out unexpectedly”. At least that’s what Dentons partner Robyn Chatwood stated regarding the “raft of issues” that have arisen from the layered flaws within the laws.

According to Chatwood, one of the key issues is that the law does not define what should be clearly articulated: what a standard form contract is and what an unfair contract term is. Due to much of the law being “context-specific”, each circumstance must be assessed individually.

“This type of red tape makes it very costly to do business,” she said.

Chatwood also believes that the sheer volume of companies and enterprises that fall under the category of small business is far too big. According to Chatwood, the ambiguity stemming from this has led to “significant uncertainty” for businesses because the laws are simply very hard to comply with.

“It’s disappointing to see that despite the intention of the laws, they are still fiendishly technical and difficult, catching out many, including the small businesses they seek to protect, and protecting some larger businesses, which is not the aim of the law. Businesses need expert legal advice to navigate the complexities, which is not often feasible,” Chatwood said.

“We’re seeing significant uncertainty for businesses because the laws are so hard to comply with.”

Over 90 per cent of businesses in Australia have an annual turnover of under $10 million or employ under 100 employees. This means that even small businesses that are proposing their own form of standard form contracts to large businesses may need to comply with these laws in some circumstances – which Chatwood claims does not seem consistent with the policy’s aim.

Overall, Chatwood is advocating for updates to the laws and called on the Australian Competition and Consumer Commission (ACCC) to provide more practical guidance.

“Unfair Contract Terms laws as they currently stand are not serving their purpose. Businesses need more certainty in the laws themselves, as well as practical guidance to save costs, cut red tape and lower their risks,” Chatwood said.