From 12 November 2016, the unfair contract terms regime in the Australian Consumer Law will be extended to small business. In the university context, the new laws will potentially capture a university's contracts with suppliers, contractors and consultants. This article outlines the new laws and their potential application to universities and provides some practical guidance on ensuring you are ready for the change.
This article is part I of II on the application of the Australian Consumer Law in higher education. It focuses on the application of the new small business unfair contract terms regime. Part II will be published in a future edition of our Higher Education newsletter, and will focus on the application of the Australian Consumer Law to the university / student relationship.
What is changing
Currently the Australian Consumer Law prohibits unfair contract terms in standard form consumer contracts . The current prohibitions do not apply to unfair contract terms between businesses, or where one party is a small business.
From 12 November 2016 the new laws will extend the prohibition on unfair contract terms to:
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In broad terms, a standard form contract in this context is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms i.e. a contract that is offered on a ‘take it or leave it’ basis.
For universities, the types of contracts that might be caught by the new laws include:
- leases or licenses to use university property (including any document forming part of the lease or read in conjunction with the lease);
- venue hire / usage agreements;
- general services agreements;
- consultancy services agreements;
- testing services agreements;
- research agreements;
- confidentiality agreements; and
- sponsorship agreements.
Contracts entered into from 12 November 2016 will be covered by the new laws, as will variations or renewals of contracts entered into prior to this date.
What is an 'unfair term'
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The Australian Consumer Law provides some examples of the types of terms which may be unfair, including terms that permit one party but not another to:
- avoid or limit the performance of the contract;
- terminate the contract;
- vary the terms of the contract;
- vary the upfront price payable under the contract without allowing the other party to terminate; and
- unilaterally determine whether a breach occurred or to interpret the contract.
What happens if a term is unfair
A party or the ACCC or ASIC can apply to the court or Tribunal to have a term declared unfair. A term declared unfair is void – but the rest of the contract continues if it is capable of operating without the term.
While there are no pecuniary penalties for including an unfair term in a contract, a regulatory investigation and/or potential court proceedings bring with them reputational risk as well as the associated time, cost and management distraction.
What should I do now
With less than four months until the commencement of the new laws, now is the time for higher education providers to review standard form contracts and policies associated with their use to consider what, if any, amendments need to be made.
To ensure this review is as thorough as possible, we recommend four key steps:
- identify when and how you use standard form contracts, whether those contracts are likely to be used with businesses which employ fewer than 20 people and, if so, whether the contract price is likely to fall within the upfront price thresholds;
- for those contracts which may be caught by the new laws, review the terms of those contracts to identify whether any terms might be unfair;
- for those terms that might be unfair, consider the business need for each term. Ask yourself does the term create an imbalance between the parties? Is it reasonably necessary to protect our legitimate interests? Is there another way to achieve the protection we need without causing the imbalance? Should the term be removed, or amended? and
- revisit policies around the use of standard form contracts to ensure those contracts are used appropriately and that where there is an ability to negotiate the terms, this is expressly brought to the attention of the intended counterparty. Providing a real opportunity to negotiate may remove the contract from the scope of the unfair contract terms regime altogether.