ACCC doubts effectiveness of unfair contract rules

Speaking with My Business about the report, deputy chair Mick Keogh said that since the rules came into force last year, the agency has seen “quite a deal of activity” in this area. But moves to rid small business contracts of unfair terms are being severely limited by the very legislation supposed to support this action.

“There’s no great deterrence, as the law stands at the moment, from having these sorts of unfair terms in contracts and then relying on them, unless someone tells you they are wrong,” Mr Keogh explained.

“The way the law is structured, it’s not illegal to have unfair contract terms in a contract; it simply means that if it’s taken to court, the court can decide to strike it out and therefore you can’t utilise that term in any action you take.

“But there is no actual penalty associated with having unfair contract terms in a contract that you provide to a small business, and that means there is not a strong deterrent.”

That places an unreasonable burden on small businesses and the ACCC to prove in court that particular terms of entire contracts are detrimental to their business and hence unfair.

And even when the court finds in their favour the terms are simply deemed invalid, with no punishment or adverse action against the larger business, nor any guidance on what could be used as replacement terms.

Mr Keogh said that the majority of companies approached by the ACCC openly admit to a lack of fairness.

“In most cases, they have not contested the fact that the terms are unfair,” the deputy chair said.

While some companies may be trying to push an unfair advantage until told otherwise in court, Mr Keogh suggested that it could be symptomatic of lawyers being overzealous in the length and wording of terms and conditions.

“In discussions with businesses where we’ve told them that we believe their contract or some terms of their contract are unfair, they often say ‘we would never rely on that anyway, it was just put there by the lawyers’,” Mr Keogh said.

“That raises the question of why they go to the level of complexity that they seem to want to go to in relation to the terms and conditions of some of these contracts anyway.”

The ACCC has already had contract terms imposed by JJ Richards and Servcorp struck down, and has launched action against a number of other businesses including Cardtronics, Mitolo, Wisdom Properties Group and AWB Harvest Finance Pools.

Mr Keogh hinted that ACCC chair Rod Sims may soon outline a push for law reform, which would see a more proactive approach to removing unfair terms and penalising those operators who fail to do so.

[Related: ‘Unnecessary array of taxes’ costing business, says professor]