I’m Still Standing – standard form contracts in the unfair contract terms regime
Significant amendments were made to Australia’s Unfair Contract Term (UCT) regime on 27 October 2022, with the passage of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 through both Houses of Parliament. After receiving Royal Assent on 9 November 2022, the amendments to the Competition and Consumer Act 2010 (Cth) outline numerous reforms to the Act, including the scope of contracts now governed by the regime as standard form contracts (SFCs). This post explores the position in relation to SFCs under the UCT regime of the Australian Consumer Law (ACL).
What is a standard form contract?
Standard form contracts often appear to consumers in the form of airline conditions of carriage, banking (eg credit card, loan or deposit account) terms and conditions, car hire contracts and gym memberships. The UCT regime also covers standard form contracts with small businesses.
When determining whether a contract is a standard form contract, and therefore subject to the UCT regime, the Court may consider any relevant matters, but must always consider the specific factors outlined at section 27(2) of the ACL:
- If one of the parties had all of most of the bargaining power regarding the transaction;
- Whether one of the parties prepared the contract prior to the parties discussing the transaction;
- Whether another party was, in effect, made to accept or reject the terms as they were presented to that party. However, this does not affect contractual terms that are required or expressly permitted by a Commonwealth, State or Territory law and terms that define the main subject matter of a contract or determine the upfront price payable under the contract; and
- Whether, aside from the abovementioned unaffected terms, a party was able to negotiate the terms of the contract.
Importantly, pursuant to section 27(1) of the ACL, an alleged standard form contract is always presumed to be a standard form contract unless the respondent proves otherwise.
Two Federal Court decisions have demonstrated how the court contemplates these factors.
- In the ACCC’s case against the Advanced Medical Institute (AMI), the Court noted that the onus was on AMI to prove that the ACL section 27(2) factors did not exist. It held that AMI failed to do so because it had a “dominant bargaining position obtained by using high-pressure selling techniques”. The Court found that:
- Consumers were subjected to pressure to enter into agreements by AMI;
- Consumers could not negotiate the terms of the contract other than the price; and
- The terms of the contract were set out in an instruction booklet that was sent to patients, often after they had entered into the contract. These terms were always in the same form irrespective of patients’ individual circumstances.
- In the case of AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd, the contract in question was held not to be a standard form contract. This was because the parties negotiated the terms of the agreement (at least the terms that were important to the counterparty) by email. The Court held that while Virtual Technology Services had an “upper hand”, there was no “overwhelming advantage”.
How can businesses tell if they are using standard form contracts?
A business is likely to be using standard form contracts if they are using a particular set of terms and conditions of sale or service, whether with individuals or small businesses.
Standard form contracts are often characterised by:
- A substantial imbalance in the bargaining power between the parties. Most often, unfair contracts arise where one party is a large business, and the other party is a small business or an individual consumer.
- Being prepared from a boilerplate template. In particular, regard should be had to whether the contract was prepared before discussion with the other party, and whether the contract takes into account the specific characteristics of the other party or the particular transaction.
- A lack of meaningful opportunity to negotiate and the counterparty is required (or effectively required) to accept the terms. Changes to the law and recent cases make clear that permitting negotiation of only minor or insubstantial terms, negotiations relating merely to price, or providing an opportunity for the counterparty to select a term from a range of options, will not (or not necessarily) exclude a contract from being a standard form contract. The counterparty should be given a meaningful opportunity to negotiate substantial contract terms.
An example of the use of standard form contracts was canvassed in the recent Federal Court case involving Fujifilm. In that instance, Fujifilm was using and enforcing the same contract terms in their dealings with thousands of small businesses. Our post exploring the Fujifilm decision can be found here.
What should businesses do?
From 9 November 2023, significant civil penalties will attach to breaches of the UCT regime. We explained those penalties in our client alert.
Businesses should therefore review their portfolio of contracts to determine which may be caught by in the UCT regime. Read our client alert about reviewing and amending (if necessary) any standard form contracts that the business may be using.
Look out for our next blog posts in this series which dive further into the UCT changes in the ACL. They will discuss what a “small business” is under the UCT regime, common unfair contract terms in standard form contracts, and the new pecuniary penalty regime for breaches of the regime.
This post was written by Georgia Zocco, Taylor Macdonald and Peta Stevenson.