Unfair Contractual Terms

18 December 2020

A term of a contract may be found unfair for the purposes of section 24 of the Australian Consumer Law (the ACL) if:

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

Relevantly, the party who benefits from the alleged unfair term will be required to prove that the term is reasonably necessary to protect their legitimate interests.

During the Court’s consideration of whether or not a contract term is fair or not, the Court will consider the contract as a whole and if the term is transparent or not.

If the Court considers that a term is transparent, this does not mean that the Court will determine that the term was fair. If the Courts find that term is not fair, that term becomes voidable and can be severed from the rest of the contract.

Section 24 of the ACL provides guidance on when a term will be considered transparent including if it is “expressed in reasonably plain language” and “readily available to any party affected by the term.” “Readily available” has been held by the Court to mean accessible or able to be reviewed.

The unfair contractual term provisions are an attempt to level the imbalance that may occur between negotiating parties where one of those parties is an individual or a small business and are negotiating with a party with more bargaining power or market share.

Please contact Walker & George to provide advice and assist in negotiating or considering any contract you intend to enter into.