First Principles of Business Law

4. Protection against unfair terms in contracts

4.1. Invalidating unfair terms in consumer contracts

When suppliers of goods or services have greater bargaining power than the individuals or businesses they are contracting with, the suppliers might insist on terms in the contract that are unduly harsh or burdensome.  In such circumstances, the disadvantaged party needs to be protected against 'unfair' terms.

The provisions of Ch 2, Pt 2-3 of the Australian Consumer Law (ACL) achieve this by invalidating such ‘unfair’ terms within specially identified classes of contracts.  There are two such classes of contract: ‘consumer contracts’ and ‘small business contracts’. Important questions that arise are:

• How are the regulated contracts defined?
• What terms are considered 'unfair'?
• How are unfair terms dealt with?
• Is any penalty imposed on suppliers who include unfair terms in their contracts?