Printing company Fujifilm has recently faced court action for its unfair contract terms. On 12 August 2022, the Federal Court declared that 38 contract terms in Fujifilm’s standard form contracts were unfair, void and unenforceable. This article explains the law surrounding unfair contract terms to help your business stay compliant.
What is a standard form contract?
The Australian Consumer Law (ACL) protects consumers from unfair terms in standard form contracts. A standard form contract is one that has been prepared by one party, where the other party has little or no opportunity to negotiate the terms. A common example of a standard form contract is a Website Terms and Conditions, which you must accept before you are able to access the site.
What are unfair contract terms?
A term is considered unfair if it:
- Would cause a significant imbalance in the parties’ rights and obligations;
- Is not reasonably necessary to protect the legitimate interests of the party who benefits from the term; and
- Would cause financial or other detriment to a party if relied upon.
In determining whether a term is unfair, the rights and obligations of each party under the specific agreementwill be considered. This means that a term considered fair in one contract, may be unfair in another.
Ultimately, only a court or tribunal can decide whether a term is unfair. However, engaging a legal professional to help review or draft your contracts can help manage the risk of court action for unfair terms.
What is the effect of an unfair contract term?
An unfair contract term is void and unenforceable. This means that the term is not binding on the parties. The rest of the contract will still apply and bind the parties to the extent that it can operate without the unfair term.
What happened in the Fujifilm case?
The Australian Competition and Consumer Commission (ACCC) commenced proceedings against Fujifilm in October 2020 alleging that several of Fujifilm’s standard form contracts contained unfair terms. This was the result of several complaints from small businesses about standard form contracts across the printing industry.
On 12 August 2022, the Federal Court declared that 38 contract terms in Fujifilm’s standard form contracts with thousands of small businesses were unfair, void and unenforceable.
What contract terms were declared unfair?
Types of terms declared unfair by the Court included:
- Automatic renewal terms allowing Fujifilm to unilaterally renew the contract unless the businesscancelled within a specified period;
- Disproportionate termination terms which gave Fujifilm significantly more opportunities to terminate the contract than the business had;
- Disproportionate liability limitation terms which required the customer to indemnify Fujifilm without corresponding rights for the business;
- Termination payment terms requiring businesses to pay significant exit fees for contract termination, including fees which Fujifilm could set unilaterally;
- Unfair payment terms including those requiring businesses to pay Fujifilm for software irrespective of whether Fujifilm had actually delivered the software; and
- Variation terms allowing Fujifilm to unilaterally vary some terms of the contract, including specific charges.
How can I protect my business?
Contract drafting can be a difficult process, as it requires a balance of the rights and obligations of each party. While standard form contracts should protect your business and help limit your liability, they still need to be fair to the other party.
Many businesses attempt to save costs by drafting their own contracts or using templates found online. However, this leads to several issues including:
- Clauses which do not sufficiently protect your business;
- Clauses which are too onerous and disproportionate leading to unfair and unenforceable terms; and
- Putting your business at risk for court action for unfair contract terms.
By having a legal professional draft or review your contracts, you can avoid many of these common issues.
- Contract terms are unfair if they cause a significant imbalance in the parties’ rights and obligations, are not reasonably necessary to protect the legitimate interests, and would cause detriment if relied upon.
- Unfair contract terms are void and unenforceable.
Gladwin Legal are experts in contract law and have extensive experience in advising businesses. If you require assistance in drafting or reviewing your contracts and agreements, please contact us at or 1300 033 934.
This article was written by Ruth Ong.