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Here is an unfair contract case study to show you how the unfair contract term provisions work.
Unfair Contract Case Study
In the last episode, we covered the unfair contract term provisions. In this episode with the help of Simone Daniells of Andreyev Lawyers in Sydney we will look at a case a listener in Sydney emailed to us.
Here is what we learned but please listen in as Simone explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Unfair Contract Case Study
Let’s assume your client is an e-commerce business, which enters into a contract with a freight forwarder. The contract stipulates monthly payments over a contract term of five years.
But then your client and the freight forwarder have a fallout and your client wants to end the contract. The freight forwarder says, “That is fine but you still need to pay me for the remaining 4 years.”
Can your client get out of this contractual obligation by pointing to the unfair contract term provisions?
If you haven’t listened to ep 302 Unfair Contract Term Provisions yet, please do so, since the following will make more sense if you do.
Question # 1 – Are you a small business?
Does your client have less than 20 employees and an upfront price of less than $300,000 or if for more than 12 months, of $1m?
Question # 2 – Is it a standard form contract?
Can the other party prove that at least one of the terms was negotiated? If not, the presumption is that the contract is a standard form contract.
So if in doubt, standard form contract.
Question # 3 – Do you pass the 3-limb test?
Does your client pass all of the following:
I – Significant Imbalance?
Is there a significant imbalance between the parties? Is it difficult to get a freight forwarder? How much choice did your client have?
II – Protect Legitimate Interest?
Does the freight forwarder have a legitimate interest to hold on to the contract? Did they – for example – incur a lot of costs upfront that they now need to recuperate over the remaining years? Is a five-year lock-in contract common and industry practice? Or much longer than common?
III – Detriment?
Would holding on to the terms be detrimental to your client? Of course, it would. So this one is easy.
So depending on how you answer each of these questions, the unfair contract term provisions will apply and release your client from having to pay.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 24 August 2021
Tax Talks spoke to Simone Daniells - Senior Lawyer at Andreyev Lawyers - for more details.
