All care and no responsibility: Why unreasonable standard terms contracts might be a risk to your business

Historically, many businesses have sought to use their standard Terms and Conditions of trade (typically attached to an invoice or quote) to completely shield themselves from responsibility by incorporating clauses which heavily favour their own interests at the disadvantage of their customers or suppliers. The common logic for such an approach was that “if things go pear shaped, we’re covered”.

However, the old ways of requiring prospective clients to sign over their soul or sacrifice their first born child in such documents have been slowly changing. Following new unfair contracts laws introduced in late 2016, a spotlight has since been cast on such practices.

These laws were introduced to protect small businesses from unfair terms in business-to-business standard form contracts.  They were designed to tip the scales back a little in favour of small businesses, particularly in situations where there is a significantly large power imbalance between the contracting parties. See here for a practical guide to the unfair contracts laws and their policy background published by the Australian Competition & Consumer Commission (ACCC). In essence, the laws apply to contracts where:

  • at least one of the parties is a ”small business” (i.e. employs less than 20 people, including casual employees);
  • the upfront price payable under the contract is no more than $300,000 (or $1,000,000 if the contract is for more than 12 months); and
  • it is for the supply of goods or services or the sale or grant of an interest in land.

Since their introduction two and a half years ago, the market and the legal fraternity have been paying close attention to how these laws are being interpreted and enforced by the ACCC. It now seems that enforcement efforts are gaining traction and (importantly) providing much needed guidance for businesses in the formulation of their standard terms contracts.

Recent action brought by the ACCC against Hutchison Ports Australia Pty Ltd (an international container terminals operator) has shed further light on the sorts of terms the ACCC has in its sights. In that case, Hutchison accepted an enforceable undertaking to remove from its standard terms:

  • A variation clause enabling Hutchison to unilaterally vary its standard terms at any time (simply by publishing a notice on its website); and
  • A limitation of liability clause which greatly restricted Hutchison’s liability to small businesses for loss and (importantly) did not contain a corresponding or balancing limitation for the small business customer.

The takeaway for businesses is to remain somewhat reasonable and balanced in formulating their standard contracts. Of course this does not mean a business cannot favour its own interests, enforce robust payment terms and set clear ground rules for typical disputes which uniquely affect its business or industry. It does however mean that the old way of disclaiming all responsibility in the fine print, without reasonable balance, must change. The risk of not doing so could mean that, if certain terms are eventually deemed unfair, they cannot be relied upon. For example, a Court may rule that a vital clause limiting liability is struck out and does not apply to the contractual relationship between the parties; a potentially disastrous outcome for businesses who find themselves in a dispute in which they are facing a large damages claim.

Striking the balance in formulating standard terms is tricky and should be undertaken with expert guidance. Rankin Business Lawyers have extensive experience in assisting its clients to formulate and update clear and practical terms which are tailored for individual businesses and industry sectors. We also provide sensible and commercial advice in respect of how to balance your standard terms in order to reduce the likelihood that they may be eventually be challenged or fall foul of the unfair contracts laws.

If it’s time to review your terms (or formulate a new set of robust and enforceable Terms), contact a member of our team for on-point, practical guidance.

Joseph Carneli, Senior Associate

2019-05-14T06:06:07+00:00May 12th, 2019|Business Advice, Contracts, Dispute Resolution|Comments Off on All care and no responsibility: Why unreasonable standard terms contracts might be a risk to your business