Welcome to the first article in our new series ‘UCT 101’, designed to assist businesses in preparing for new reforms to the unfair contract terms (UCT) regime under the Australian Consumer Law (ACL), introduced by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act). In efforts to support businesses during the 12-month transition period for these new reforms, we will be publishing a series of articles to provide a fulsome overview of the UCT reforms and delve into some of the specific points that businesses will need to consider when assessing UCT risk. As part of assessing UCT risk, businesses will need to understand some of the foundations of the UCT regime in the ACL. In this article, we cover one of these preliminary foundational questions – what is a ‘standard form’ contract under the ACL?
What is a standard form contract?
Given that the UCT regime only applies to standard form consumer or small business contracts1, it is important for businesses to understand what constitutes a standard form contract.
In the explanatory memorandum to the Act, the Federal Government gave a concise answer on why standard form contracts are singled out in the UCT regime:
Standard form contracts are a commonly used and cost-effective option when conducting business, as they avoid the transaction costs associated with negotiated contracts… However, consumers and small businesses often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts.2
What are examples of common standard form contracts?
A standard form contract is generally understood as a set of standard terms and conditions that is issued on a repetitive basis to multiple people, for example, a gym membership application form or the terms and conditions governing an electricity service. These types of agreements can be contrasted with agreements that are often heavily negotiated, such as a business sale agreement or a complex commercial lease.
My businesses contracts are more unique than these, am I in the clear?
Not necessarily. Despite what may be generally understood, the ACL provides no blanket rule on what constitutes a standard form contract. As such whether a contract is standard form will be fact dependent and a decision for the Courts. Section 27(2) of the ACL requires a Court, in making such a determination, to take into account such matters as it thinks relevant, including the following matters that it must take into account:
a. whether one party had most or all of the bargaining power relating to the transaction;
ba. whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and, if so, how many such contracts that party has made [note that this is a new addition introduced by the Act];
b. whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
c. whether another party was, in effect, required to accept or reject the terms of the contract (other than those defining the subject matter or upfront price payable under the contract, or those required by law) in the form in which they were presented;
d. whether another party was given an effective opportunity to negotiate the terms of the contract (other than those defining the subject matter or upfront price payable under the contract, or those required by law);
e. whether the terms of the contract (other than those defining the subject matter or upfront price payable under the contract, or those required by law) take into account the specific characteristics of another party or the particular transaction; and
f. any other matters prescribed by the regulations.
Section 27(1) of the ACL provides that if a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless the other party to the proceeding proves otherwise.
So all we need to do is negotiate a few terms here and there?
Not quite. The changes to be implemented under the Act have made it clear that any form of artificial negotiation will not be sufficient to show that a contract is not a standard form contract.
The new section 27(3) inserted by the Act clarifies that a contract may still be a standard form contract despite there being an opportunity for:
- a party to negotiate changes that are minor or insubstantial in effect;
- a party to select a term from a range of options determined by another party; or
- a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.
These additions are impactful and mean that any negotiation undertaken between the parties must be meaningful. For example, a contract term may still be unfair if the counterparty had an opportunity to negotiate some of the minor boilerplate provisions, but was told that the liability position was non-negotiable. These changes also mean that providing a counterparty with the opportunity to negotiate one contract or proposed contract does not mean that an opportunity has been provided in relation to subsequent contracts or proposed contracts.
How has this issue been determined in Court?
To see how this issue has been determined in court, please click here for further information on the recent case of AIBI Holdings Pty Ltd v Virtual Technology Services Pty Ltd [2022] FCA 696 where the Court considered whether a contract was a standard form contract.
Next edition
In our next instalment of UCT 101, we will look at the definition of ‘small business’ in the UCT regime (as recently amended by the Act), considering some of the nuances of this concept.
How can we help?
We have a dedicated contracting and consumer law team that can assist you with contract preparation and review and can provide you with advice on your rights and obligations under the ACL, particularly in light of recent reforms. We also routinely present to businesses on the Australian Consumer Law and the unfair contract terms regime. Please contact us if you would like more information about the services we provide.
This article was written by Teresa Torcasio, Partner and Zoe Vise, Associate.
1 ACL, s 23(1)(b).
2 Chapter 2, 2.3 – 2.4.
