Good contracts create good relationships, writes Love Your Legals founder, Shalini Nandan-Singh. But how can you ensure your contracts are fair and reasonable?

Few concepts are more Australian than the belief in a ‘fair go’. We expect people in both personal and business life to act fairly and reasonably. We dislike seeing people taken advantage of, and those who unfairly treat others are often labelled by public opinion as bullies, rip-off merchants, scumbags or worse.

As small business owners and community members, we strive to get the balance right – we neither want to take advantage of others nor be taken advantage of ourselves. But unfortunately, we have all had personal experiences or heard horror stories of people being abused because of unfair terms in standard contracts. They might have been left out of pocket for poor service delivery or defective products, had a refund request refused, been given unreasonable price increases without notice or agreement… and the list goes on.

The problem with standard contract terms

Business contracts such as service agreements and terms and conditions represent how we do business and show up to our clients, customers or suppliers. Unfortunately, many businesses use standard contracts or templates without scrutiny or appropriate customisation.

This is a dangerous practice as standard contract terms contain terms that may not represent your business accurately. It might not be considered “fair” in dealing with your customers and clients and may not comply with Consumer Law requirements that apply to your business.

Standard contracts and terms should always be scrutinised through a lens of ‘fairness’. Carefully customising standard terms before using them in your business and reading standard contracts and terms before signing or accepting them can save you as a business owner from bad blood with your customers. They can also save you as a consumer from losing money by proceeding with a service with unfair contract terms.

Good contracts create good relationships

A “good” service agreement or terms is a fair one. Good contracts create good relationships.

A good contract promotes communication and demonstrates professionalism and best business practices. In addition, a good contract builds trust because both parties are aware of what will happen in defined circumstances.

But what makes a contract ‘fair’ or ‘unfair’?

According to the ACCC, to be deemed ‘unfair’, a contract term must:

• Cause a significant imbalance in the parties rights and obligations.

Does one party have a lot more rights or advantages than the other? Does one appear to have all the rules applied to them while the other has few obligations? That’s what ‘imbalance’ looks like.

• Not be reasonably necessary to protect the legitimate interests of the party advantaged by the term.

One party is unfairly advantaged by a contract term, over and above what could be considered reasonable protection.

• It could cause financial or other detriment (such as delay) to a small business if it relies on it.

For example, can a supplier increase their prices significantly without any warning or notice?

Good contracts are transparent

At the end of the day, only a court or tribunal can determine if a contract term is unfair – not the ACCC.

The court or tribunal will consider the fairness of a term in the contract in the context of the entire contract. This means they look at the overall intention and effect of the contract, rather than looking at a term of it in isolation. There may be additional benefits offered to one party to offset advantages given to the other so that the contract as a whole is quite fair and balanced.

A big part of deciding whether a term is unfair lies in looking at how transparent the term is. To be transparent, a term must be communicated in reasonably plain language. It’s fair to expect that the average person would understand the meaning of the contract term and not be confused by it or have hidden meaning through complex and convoluted language.

Transparency also includes the terms being legible, clearly presented and available to any party affected by the term. For example, terms hidden in fine print or schedules may not be transparent. However, even if a term is transparent, it can still be unfair. Just because you can easily read and understand a term doesn’t make it fair – it’s simply easier to detect it.

What can you do if you think contract terms are unfair?

Ideally, you would have a lawyer look over the contract before you sign it. But even if you have signed a contract, it is not too late to do something about an unfair term.

You can ask the other party to amend or remove the term so it’s no longer unfair and better represents your interests.

If you are unsure of what would make the term reasonable or the other party is challenging, please consult with a small business lawyer. One who understands your business and your market, or the nature of the contract or terms you are engaging with. That way you can respond to the other party in a way that best protects your interests.

Remember also that you need to ensure your own terms and conditions are fair. That means, they inform and protect both parties. A good and fair contract gives both parties confidence in the business processes and each other. And that’s good for business.

Further resources and more information about unfair contracts and terms here.

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