Responding to a ‘paradigm shift’ in contracting
Recent amendments to the Unfair Contract Term regime may cause tension between law departments trying to avoid penalties and other teams more invested in the bottom line.
Earlier this month, the Unfair Contract Term (UCT) regime under Australian Consumer Law was amended and, moving forward, will be relevant for more businesses than ever in that it applies to standard form contracts where one contracting party has less than 100 employees and/or a turnover of less $10,000,000.
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The new changes, Bird & Bird senior associate Alex Gulli reflected, “impose a paradigm shift in contracting” – one that moves away from extensive terms and conditions and heads toward simpler, more balanced agreements.
However, he noted, while the new laws penalise the use of unfair terms, the test for determining unfairness remains both unchanged and a complex challenge for in-house teams, “requiring a nuanced approach”.
“Case law highlights this difficulty with findings that terms seemingly addressing genuine business concerns could still be unfair if drafted too broadly,” he explained.
“This means, for example, that broad, unilateral indemnities (e.g., for breach of privacy laws) without appropriate counterbalancing rights could be unfair.”
As a result, Mr Gulli posited, the new laws will cause tension between in-house legal teams aiming to avoid substantial penalties and operational teams focused on the bottom line.
“This creates the biggest challenge for in-house teams: convincing operational and executive units that longstanding, money-making, commercial practices (e.g., automatic price increases or contract renewals, without notice or a right to terminate for a customer) could be unfair and must be changed,” he surmised.
Roberts Crosbie Mortensen Lawyers senior associate Hamish Taylor suggested that in-house counsel can ensure compliance, mitigate risks, and support their businesses in the evolving UTC legal landscape by fostering effective collaboration with external providers and implementing certain practices.
A comprehensive contract review, he detailed, will be necessary to identify if those existing business contracts are standard form, contain any unfair contract terms, and if so, prioritise amending or removing unfair contract terms to align with the revised regulations.
Education of stakeholders, Mr Taylor went on, will also be critical: “Provide training sessions [for those within your organisation] to enhance understanding and compliance at all levels.”
Open communication and regular compliance audits will also be of assistance, he noted.
“Foster transparent communication with external legal providers and clearly articulate your organisation’s expectations regarding UCT compliance, [and] conduct regular audits to assess both internal and external compliance with UCT regulations,” Mr Taylor said.
The conduction of such risk assessments of the circumstances in which a term could be unfair and examining the businesses’ legitimate interests to suggest any necessary changes, Mr Gulli concluded, will “help align internal teams and allow the business to make informed decisions”.