Sharper Focus on Unfair Contract Terms

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The concept of unfair contract terms is governed by the Australian Consumer Law (“ACL”) and applies to the category of commercial contracts that are standard form consumer contracts (if entered into after 1 July 2010) and standard form business contracts (entered into after 12 November 2016).

While there is no definition of a standard form consumer contract in the ACL, in broad terms, they are contracts that are pre-prepared and provided to a consumer on a “take it or leave it” basis with no opportunity to negotiate the terms and must relate to the supply of goods, services including even the sale of land.

Some examples of standard form contracts include but are not limited to insurance policies, building contracts, loan agreements, franchising agreements, airlines and travel contracts, terms and conditions incorporating privacy policies, software and online services and electricity and gas supply contracts.

A term of a standard form consumer or small business contract will be unfair if it:

  • would cause a significant imbalance in the rights and obligations of the parties under the contracts;
  • is not reasonably necessary to protect the legitimate interests of the party who is advantaged by the term; and
  • would cause detriment, whether financial or otherwise, to a party if it were to be applied or relied upon.

The onus of proving that a term in a contract is not unfair is on the supplier whose terms are challenged.  This means that a party who alleges that a term in a contract is unfair is presumed to be correct unless the other party proves otherwise.

The law at present is that if a standard form contract incorporates an unfair term, a court can declare that term void such that the infringing term will not apply.  The effect of an unfair term in a contract is that it is void and of no effect but the other terms of the contract will continue to be binding if capable of operating without the unfair term.  This means that unfair terms, if declared void, cannot be relied upon or applied by a supplier. 

Parliament has recently passed laws for the introduction of penalties for businesses that include unfair contract terms in their standard form contracts with consumers and small businesses.  Now, not only may a term be declared void but penalties may also apply to suppliers for having included that term in a standard form contract.  

Complaints regarding unfair terms in standard-form contracts may not only be made by individuals but also by small businesses in their dealings with larger businesses.  Currently, individuals as well as small businesses employing fewer than 20 persons can take action for breaches under existing unfair term provisions.  The new federal laws extend the reach to small businesses that employ fewer than 100 persons or have an annual turnover of less than $10 million.  Importantly the new laws will apply irrespective of the value of the contract between the parties.  These penalties were not previously part of the armoury of the ACCC when confronted with complaints from consumers alleging unfair contract terms.

The amendments to the ACL regarding the expanded reach of the ACCC regarding the unfair term provisions of the ACL in particular compliance with such provisions and the imposition of penalties are not yet law and are expected to come into effect within 12 months.  This will allow companies to review and amend their standard form contracts to ensure compliance with relevant laws.  

Noncompliance with the new provisions of the Act regarding unfair terms in standard-form contracts could now have severe financial implications.  As a result, businesses should not leave things to the last minute and should consider immediate action starting with a review of their existing standard form contracts.

For more advice on your rights as a business owner, please get in touch to book a consultation with our experienced commercial lawyers.

E-Sign of the Times

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The permanent modernisation of key aspects of the Corporations Act 2001 (Cth)

Under Australian law contracts and company documents must be correctly signed to be valid, binding and enforceable.  Among the archaic common law rules that have existed is that deeds had to exist in ‘paper, parchment or vellum’.  Until now.

The long awaited Corporations Amendment (Meetings and Documents) Act 2021 became law on 22 February 2022.  This legislation has permanently modernised a number of aspects of the Corporations Act 2001 (Cth) by allowing companies to use technology to meet regulatory requirements including the electronic execution of company documents by the use of what we currently refer to as “e-sigs”.  In the process these archaic laws have rightly been consigned to legal history making it clear that corporate deeds can now exist in purely electronic form.  

Importantly, the new legislation ensures that company documents will no longer be invalid or unenforceable due to non-compliance with mere formalities.  For example, it is no longer a requirement that a corporate deed be witnessed or delivered to be valid.  

The new legislation also introduces new provisions to enable companies to send notices electronically as its default position and to hold online meetings.  

The reforms build on temporary relief measures (due to COVID) which will remain in place until 31 March 2022.  

Regarding the timing of the implementation of the changes introduced by the new legislation, it applies to documents executed on or after 23 February 2022 and meetings held after 1 April 2022.

If you would like further information in relation to any of the reforms noted in this article please contact David Vilensky or Alana Shaddick of our corporate advisory team on 9325 9644.

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The Bank of Mum and Dad Needs A Paper Trail

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The Australian Financial Review recently reported (8-9 May 2021) that parents are now among the nations’ top 10 lenders for home loans with data showing more than 60% of first home buyers are receiving assistance from their parents to purchase their first home.

Unsurprisingly with the world in the middle of a pandemic and the economy in recession, now more than ever, children are turning to their parents for financial assistance. It is incredibly important that prior to parents providing financial assistance to children, parents must first be clear on whether the assistance is to take the form of a gift or loan.

The distinction between the financial assistance provided being a gift or loan becomes incredibly important in the following scenarios:

  • the child’s relationship breaks down and their spouse alleges that the financial assistance was a gift rather than a loan;
  • the parents pass away and their Executor is left to determine whether or not the financial assistance is to be repaid to the Estate;
  • a sibling makes a claim for further provision from the parents’ Estate on the basis that the child has already received financial assistance during their lifetime;
  • the child becomes bankrupt and the trustee in bankruptcy classes the financial assistance as an asset as opposed to a liability;
  • the relationship between the parents and child breaks down;
  • the parents are receiving a Centrelink pension which may be affected by providing the financial assistance to the child.

In the above scenarios, it is generally the parents or their Executor who bear the onus of proving that the financial assistance was a loan rather than a gift. Often the only written evidence available is the bank transfer, with the only other evidence being verbal communications resulting in a “he said, she said” argument.

Disputes of this nature can so easily be avoided by first consulting with a Solicitor to create a paper trail and have a properly prepared and executed loan agreement in place.

If you or someone you know of are considering providing financial assistance to a child or any other person, please contact our office to make an appointment to meet with one of our experienced Solicitors. We are also able to advise on any existing arrangements that have not yet been documented. 

When Does Your Resignation As A Director Become Effective?

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Can A Director’s Resignation Be Backdated?

There are over 2000 laws and regulations in Australia that impose personal liabilities on Directors of both private and public companies.  These laws and regulations range across areas as diverse as taxation, superannuation, occupational health and safety, insolvency and consumer law.

For these reasons, it is important that when a person resigns as a Director of a company for whatever reason, such resignation is done properly in order to be effective.  Failing which a Director can remain personally liable for a range of obligations and liabilities even after they believe they have resigned their position.

Recent amendments to the Corporations Act which came into effect on 18 February 2021 have put into sharp focus the need for resigning Directors to ensure that the appropriate paperwork is prepared and that the Australian Securities and Investments Commission (ASIC) is properly and promptly notified. 

Under the recent amendments a Director’s resignation will now take effect on:

  • The date that the person ceased to be Director (which requires a formal letter of resignation) if ASIC receives notice of the resignation within 28 days of it occurring; or
    • The date the notice is received by ASIC, if ASIC receives notice of the resignation more than 28 days after it has occurred.

It is also worth noting that if the resignation of a Director will leave the company without at least one Director it will not take effect.

When a Director resigns the company is required to notify ASIC within 28 days of the resignation occurring.  This is done by filing with ASIC an appropriate Form 484 which can be completed online.  This is normally attended to by the company secretary or the external accountants of the company.  Prior to the amendments coming into effect, if the company failed to lodge the notification with ASIC within 28 days it was liable only to pay a late lodgement penalty, however, the resignation was still effective from the date of the letter of resignation irrespective of when ASIC was formally notified. 

Now, a resignation as a Director will not take effect unless and until ASIC is notified.  This prevents the improper backdating of Director resignations and ensures companies are not improperly left without Directors. 

Importantly, persons who resign as Directors remain exposed to liability after their resignations unless ASIC are notified within 28 days.  Until ASIC are notified the Director resignation is not effective and the exposure continues.

For these reasons the importance of proper company processes which include the prompt notification to ASIC cannot be underestimated.

For professional advice from our team of Commercial Lawyers in Perth, please contact David Vilensky or Les Buchbinder on 9325 9644.