Unfair contract terms and small businesses: Examples and practical considerations

What are some examples of unfair contract terms?

There are a number of examples regarding the types of clauses which could be found to be unfair terms. The table below shows some but not all of the examples which may be relevant. 

In some situations, the very type of clause highlighted below can actually be fair, reasonable and effective and it is important to think about each contract on a case by case basis. Not every type of clause below is unfair in every set of circumstances.


Type of Clause: Limited Liability

Examples

  • Clauses that limit liability irrespective of fault;
  • Clauses that do not provide for proportionate reduction in liability for contribution to the loss or damage by the other party.

Practical Considerations

  • Parties should be liable for the loss they cause or contribute to.
  • Consider whether the other party should be liable:

o  For your negligence;

o  To the extent you cause or contribute to the loss or damage

  • Whether it is appropriate to attempt to exclude consumer rights under the Australian Consumer Law.

Type of Clause: Broad Indemnity

Examples

  • Clauses that require one party to indemnify the other party including for loss or damage that was not caused by the party providing the indemnity.

Practical Considerations

  • The indemnifying party should be “on the hook” for the loss or damage that they cause and to the extent that they cause it.
  • Consider the indemnifying party should be responsible:

o  For their negligence;

o  To the extent only that they cause or  contribute to the loss or damage.


Type of Clause: Entire Agreement

Examples

  • Clauses that provide that the agreement supersedes all prior agreements and contains all things necessary and relevant to the subject matter of the contract.

Practical Considerations

  • Is it clear that some pre-contractual representations can still be relied upon?
  • Are only previous written agreements superseded?

Type of Clause: Unilateral Termination

Examples

  • Clauses that allow one party but not the other to terminate.
  • Term penalising only one party for breach or termination

Practical Considerations

  • Does the termination take place only after first providing the other party with reasonable notice?
  • Does the other party have a prior opportunity to rectify the breach prior to termination?
  • Is termination for a minor or trivial breach?

Type of Clause: Unilateral Variation

Examples

  • Clauses that allow only one party to vary the contract, but not the other.

Practical Considerations

  • Is the other party given prior notice of the change before it takes effect?
  • Does the other party have the ability to terminate the contract if they do not agree to the change?
  • If the other party can terminate, are they refunded their reasonable fees and charges paid in advance?
  • Can either party vary the contract for specific clear reasons?
  • Can the contract only be varied by written (clear) agreement between the parties?

Type of Clause: Unilateral renewal or automatic renewal

Examples

  • Clauses that allow one party to renew (or not renew) but do not provide the same right for the other party.

Practical Considerations

  • Is the unilateral renewal or the automatic renewal clause adequately disclosed to the other party?
  • Is there provision for notice regarding the renewal?
  • Is there a reasonable period to take action or provide notice to stop the renewal?
  • Is there any termination or other fee payable if the renewed contract is terminated?
  • Is there a potential option to terminate at the end of the initial term (and prevent the renewal or roll-over)?
  • Can the automatic renewal provisions be “turned off” in the contract?
  • Is the other party provided with notice where the agreement has a roll over or automatic renewal, but that roll over or automatic renewal is not applied (that is, the agreement is terminated)?

Type of Clause: Unilateral variation of price

Examples

  • Clauses that allow one party to vary the price but do not allow the other party a corresponding right to terminate.

 

Practical Considerations

  • Is the change in price simply a result of passing on a cost which is outside a party’s control (for example, a third party increase or a cost increase due to change in law)?
  • Is notice of the price change provided to the other party, in advance?
  • Can the other party terminate the contract if it does not agree to the price variation?
  • Is any penalty imposed on the other party if it terminates the contract if it does not agree to the price variation?

This article has been published as an addition to part one: Spotlight on unfair contracts and small businesses.