Escaping Unfair Contracts

A Crisp Law Client Success Story

By Derek Ding

What if a rule designed to protect everyday consumers could be used to benefit your business as well?
In this edition, Crisp Law demonstrates how a major construction client was released from unfair contractual terms through an innovative application of the Australian Consumer Law. Although this national framework is traditionally designed to protect individual consumers in the purchase of goods and services, recent reforms have extended its reach to more complex commercial dealings between businesses. By leveraging this expanded scope, Crisp Law was able to challenge provisions that effectively required the client to continue paying for services that were no longer needed.

What is the Australian Consumer Law?

The Australian Consumer Law (ACL), contained under Schedule 2 of the Competition and Consumer Act 2010 (Cth), sets out the legislative framework for consumer guarantees and the remedies available when those guarantees are breached. Under these provisions, we were able to advise our client, a major construction corporation on existing unfair standard form contracts. In this instance, like many other standardised contracts that include automatic renewal and restrictive termination clauses, our client faced a financial obligation for a service no longer needed.

Why the expanding scope of ACL is relevant to you

Despite these clauses being the industry standard, our team successfully identified that this contract was nonetheless entitled to the protections afforded under the ACL. This was due to two factors: (1) the client satisfied the statutory definition of a small business for the purposes of the unfair contract terms provisions, and (2) the monetary value of the agreement fell within the expanded AU$100,000 threshold of a “consumer” good.

Prior to July 1st, 2021, a person or business was considered a “consumer” under the ACL, thus entitling them to these provisions, if they were acquiring goods or services priced at AU$40,000 or less.

However, following the Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020 (cth), the monetary threshold was increased to AU$100,000, significantly extending the scope of transactions protected under ACL. Therefore, a much broader range of purchases, including many back-to-back business and commercial transactions now fall under the definition of a consumer, thereby extending the protections provided under ACL.

Similarly, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) introduced further amendments to the ACL, expanding unfair contract term protections to apply to a small business if they employ fewer than 100 persons or has a turnover rate, for the previous income year, of less than AU$10,000,000.

Therefore, our client, having satisfied the requirements to be entitled to the ACL’s unfair contract term protections on two grounds, was then required to demonstrate that the disputed clauses were unfair, under the meaning of s 24 of the ACL.

Under this provision, s 24(1), a contract is deemed unfair if it:

  1. Would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  2. It is not reasonably necessary in order to protect the legitimate interests of the party that would be advantaged by the term; and
  3. It would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

By carefully analysing the structure and effect of the automatic renewal and termination clauses, our team demonstrated that these provisions operated to the supplier’s sole advantage, imposing financial detriment on our client.

This outcome underscores our firm’s commitment to achieving commercially sound and equitable results for our clients through the strategic and innovative application of the law. By recognising the broader potential of consumer protections under the Australian Consumer Law, our team was able to deliver a practical solution to a seemingly standard issue that aligned with our client’s best interests.

At Crisp Law, we continually look beyond the conventional interpretations of the law to identify and leverage underutilised legal mechanisms to ensure that our clients are afforded the full extent of protections available to them. For guidance on such issues, the experts here at Crisp Law are here to help.

References:

  • Competition and Consumer Act 2010 (Cth) sch 2.
  • Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020 (Cth).
  • Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth).

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