Six things you should know about ‘unfair contract’ law

In the vast majority of cases once you enter into a contract you are locked into its terms. 

However, there is a way out: you may be able to claim the contract is void because it is “unfair”.

Unfair contract laws operate to protect ‘weaker parties’ from unfair terms which will cause them serious detriment.

Here are the six things you should know about unfair contract laws, which may be helpful to your business.

Unfair contract laws only cover a small number of contracts?

Unfair contract laws cover only some contracts, in particular contracts where all terms and conditions of the contract are set by just one of the parties and the other party isn’t really in a position to negotiate those terms.

Contracts covered by unfair contract laws are known as ‘consumer contracts’. This means the typical contracts covered by the laws are consumers and more specifically for the supply of goods and services to consumers in many industries, including:

  • telecommunications contracts
  • electricity and gas
  • cars
  • loans
  • fitness

What is a ‘consumer contract’?

Well, it’s not always 100 per cent clear whether a contract is a “consumer contract” – but if a court answers yes to all these questions, they are likely to hold the agreement to be a consumer contract:

  • Does one party have all the bargaining power?
  • Was the contract prepared by one party and the other party has no chance to vary all the terms?
  • Was the other party given any opportunity to negotiate the contract’s terms?

When is a contract considered to be ‘unfair’?

A consumer contract may be considered ‘unfair’ if:

  • The contract clearly favours one party, giving them all rights and the other party all the obligations.
  • This imbalance in the contract is not really necessary to protect the stronger party’s interests.
  • It would cause detriment, financial or otherwise, to the party who is at a disadvantage in the contract.

Contract terms which may be considered unfair

The following types of contract terms may mean a contract is unfair:

  • Terms which allow one party to alter the contract without consulting the other party.
  • Terms which allow one party to completely avoid responsibility when things go wrong.
  • Terms which allow one party to completely prevent any negligence claims against it.
  • Terms which allow one party to make an unilateral determination that the contract has been breached.

But, some terms cannot be challenged all

Unfair contract laws do not allow a consumer to challenge terms relating to:

  • Price
  • Definitions of the product or service being supplied.

Potential outcomes if a contract is found to unfair

  • The contract may be declared completely void by a court or some of the terms may have to be removed.
  • The court may also direct the refund or the return of property and goods.

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