AUSTRALIA Trends and Developments Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers
Unfair contract terms Under the Australian Consumer Law, contract terms in a standard form small business or consumer contract (including franchise agreements) are deemed unfair if they: • cause a significant imbalance in the rights and obli - gations of the parties under the contract; • are not reasonably necessary to protect the legiti - mate interests of the party advantaged by the term; and • would cause detriment to the other party if applied or relied upon. Prior to 9 November 2023, if a court or tribunal found that a standard form small business franchise agree - ment contained a term that was “unfair”, the term would be void, meaning it would not be binding on the parties. Since 9 November 2023, businesses are prohibited from entering into standard form contracts with small businesses or consumers that include unfair contract terms. They are also prohibited from applying or rely - ing on (or purporting to apply or rely upon) unfair con - tract terms in contracts entered into or renewed, or any unfair contract terms that are varied, on or after 9 November 2023. The ACCC can now seek significant financial penal - ties from businesses that breach these prohibitions. Subject to the transitional arrangements for standard form contracts entered into before 9 November 2023, entering into contracts with, or relying or purporting to rely upon, unfair contract terms may now be subject to significant penalties. This means that many provi - sions that would typically have previously been seen in franchise agreements are now unlikely to be permit - ted, such as: • entire agreement provisions; • set off for the franchisor only; and • unilateral variation provisions. Perhaps most troubling, the ACCC has expressed a view that restraint of trade and non-competition claus - es may infringe the unfair contract laws.
Australia and New Zealand Banking Group Limited [2015] FCAFC 50). The obligation to act in good faith includes the follow - ing elements: • honesty; • fairness; • not acting arbitrarily; • co-operating to achieve the purpose of the fran - chise agreement; • reasonableness; and • having regard to the interests of the other party. While the Franchising Code does not define “good faith”, it provides that a court may consider whether a party acted honestly and not arbitrarily, and whether it co-operated to achieve the purpose of the franchise agreement when assessing whether that party acted in good faith. The development of the law of good faith means that franchisors cannot simply look to their own interests in consistency within the franchise system to justify actions and decisions. While a party must take the interests of the other party into account, the obliga - tion to act in good faith does not prevent a party from acting in its own legitimate commercial interests. Con - sequently, a party is not required to act in the interests of the other party at the expense of its own interests. The view of the Australian Competition and Consum - er Commission (ACCC) is that conduct is prohibited where it harms the franchisee but is not necessary for the protection of the franchisor’s interests. The Fed - eral Court of Australia has accepted that view, and held that the duty to act in good faith does not enable a party to make a general claim that there has been a failure to act in good faith. Where a franchisee com - plains that a franchisor has not acted in good faith, the Court has held that “the focus of an obligation of good faith should ordinarily be on a franchisor’s use of powers and opportunities available by reason of the franchise relationship” ( Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd [2019] FCA 12).
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