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INDUSTRY in FOCUS
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HIRE AND RENTAL NEWS • AUGUST 2016
From 12 November 2015, the Treasury
Legislation Amendment (Small Business
and Unfair Contract Terms) Act 2015 (Act)
will extend the unfair contract protections
currently enjoyed by ‘consumers’ so those
protections will cover standard form
‘small business contracts’.
Although the Act will not operate
retrospectively, it will apply to any
‘rollover’ of an existing contract which
occurs after 12 November 2016.
In this article, we’ll focus mainly on the
impact of the unfair contracts regime on
hire agreements and briefly run through
some of the Act’s key concepts, the types
of clauses that are particularly risky, the
consequences of getting it wrong and
how you can avoid legal problems.
Key concepts
To be in breach of the unfair contracts
regime, an agreement must:
• be in a ‘standard form’;
• be a ‘small business contract’; and
• contain ’unfair terms’.
The Act does not define what is meant
by ‘standard form’. This allows the
regulator to cast a wider net to attack
terms which it believes contravene the
Act. Even though ‘standard form’ is not
defined, case law in respect of unfair
contract terms in the consumer context
indicates agreements which are provided
on a ‘take it or leave it’ basis, or sent
out to customers with little scope for
negotiation, are likely to be considered
‘standard form’.
In respect of the second requirement, the
Act defines a ‘small business contract’, as
one where:
• the upfront price payable under the
contract does not exceed $300,000, or
$1,000,000 if the contract duration is
longer than 12 months; and
• at least one party to the contract is a
business that employs fewer than 20
persons.
A wakeup call for hire businesses
– is your contract unfair?
By Michael Muratore and Oliver Shtein – Lawyers, Bartier Perry
Hire businesses need to be aware their hire agreements could expose them to liability if
they contain terms which are unfair. Damage waiver clauses are one example of terms
which have recently come under the regulator’s microscope. Bartier Perry explains.
While the upfront price can be easily
determined, as can the number of
employees you employ in your own
business, it will likely often be difficult to
determine the number of persons your
customer employs.
In practice, for the sake of having uniform
procedures, it may be more prudent
to assume all hire customers could be
affected by the new unfair contracts
regime rather than trying to identify
agreements across your entire customer
base which are with small businesses.
The third and arguably most important
concept under the Act, is that of the
‘unfair term’. The legislators have also
avoided taking a prescriptive approach to
defining what is an ’unfair term’.
As a result, whether a term is unfair or
not must be assessed on a case by case
basis in the context of the agreement as
a whole. Again, this allows the regulator
to cast a wider net to attack agreements
which it believes contravene the Act.
The types of hire agreement terms likely
to be considered unfair are those which:
• would cause a significant imbalance
to a party’s rights and obligations, in
other words which would make the
contract operate in a way which was
substantively unfair to the customer;
• are not reasonably necessary to protect
the legitimate interests of the hire
business; and
• would cause detriment to the customer
if they were relied upon or enforced.
Some specific examples of unfair terms,
though by no means an exhaustive list,
are those which:
• allow the hire business to unilaterally
vary the contract, without a
corresponding right for the customer
to exit the contract if the variation is
unfavourable;
• require the customer to indemnify the
hire business for loss, regardless of
whether the customer was at fault;
• allow the hire business to unilaterally
assign, terminate, or avoid performance
of the hire agreement (for example
permitting an indefinite suspension)
without allowing the customer to
terminate the hire agreement; or
• impose default fees on the customer
that are excessive and likely to
exceed what is required to protect the
legitimate interest of the hire business
imposing them.
It is not just the nature of the terms
that increases the risk, but also the
way in which they are presented to the
customer.
For example, there is an increased risk
a court will find your terms to be unfair
if you fail to express them in reasonably
plain language and present them clearly
and legibly to the customer.
Europcar – a cautionary tale about
‘damage waiver’
The court’s approach to determining
whether a term is unfair (in the consumer
context) was illustrated earlier this year
when CLA Trading (Europcar) was found
to have breached the existing consumer
unfair terms prohibition in connection
with the operation of a car rental
business.
The court adopted the three step
approach set out above; first considering
whether the terms resulted in a
significant imbalance in the parties'
rights, second whether the terms were
reasonably necessary to protect the
interests of Europcar and finally, whether
the terms would cause detriment to the
customer if relied upon.
The case centred around representations
made by Europcar the maximum amount
payable in the event of loss or damage to
a vehicle, or third party loss, was a fee of
$3650 (Damage Liability Cap).
In fact, the Damage Liability Cap was
not an absolute cap and did not operate
in a number of circumstances, including