New laws on unfair contracts likely

The Government will introduce a bill to Parliament in June to take effect in January 2010 that includes provisions which may make unfair terms in standard-form contracts void.

So what is meant by ‘unfair’? The test is apparently whether the contract provision produces "a significant imbalance in the parties’ rights and obligations" and "is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term". It appears that terms are likely to be unfair where for example they have the effect of giving one party unilateral rights to change, terminate, or assign the contract, limit the rights of the other party, or impose penalties on the other party for breach or termination.

The protection of legitimate business interests is not a new concept. It is one of the tests for determining whether a restraint of trade agreement is enforceable.

Common national guidelines will be issued by consumer protection agencies (ASIC, the ACCC & the State & Territory Fair Trading offices) prior to commencement in order to achieve greater clarity and consistency in application and enforcement.

The Franchise Council of Australia has made a formal submission to the Minister. It contends that the consumer-focused provisions should not be extended to business-to-business transactions and that franchises should be exempt. If not exempt, franchisors, like other issuers of standard-form contracts, will need to ensure that existing contracts are scrutinised in order to comply with the provisions. Any future agreements will also need to be carefully drafted.

By Danielle Wright - MCW Lawyers

MCW Lawyers provice franchise legal advice to franchisees and franchisors