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Unfair Terms in your Hire Agreement

Every business is different and every hire agreement is different. 

What’s the problem?

What businesses really have to be very wary about from 12 November 2016, is that businesses using unfair terms in their hiring contracts could be exposed to liability under the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015.

What contracts are caught?

The hiring contract has to be in a “standard form” for the Act to apply. So, if your contracts are given to your customers on a “take it or leave it” basis, or given to your customers with little scope for negotiation, then they are likely to be considered “standard form”. Many franchise agreements are standard form contracts, for example.

What businesses are caught?

The business has to be a small business. Broadly, if the contract:

  • goes for more than 12 months; and
  • the price payable under the contract is less than $1 million; and
  • if your customer is a business employing less than 20 people;

then it is a “small business”.

How big is my customer?

You may not know how many employees your customer has. It is probably wise to assume that all your hiring customers are affected by the new law.

 What else do you need?

Beyond having a small business customer and a standard form contract you have to have an “unfair term” in that contract to potentially be caught under this legislation.

What is an unfair term?

The cases and related legislation have shown that the following hire agreements could be considered as having unfair terms:

1)      a contract which would cause substantial unfairness to the customer. For example, a clause saying the price to be paid by the customer can be varied from time to time by the supplier at their sole discretion.

2)    a contract with a term which is not reasonably necessary to protect the legitimate interests of the business hiring out the equipment to the customer. An example could be a clause stating that any claims against the business must be made within 14 days of when the circumstances giving rise to the claim should have come to the attention of the customer: under the general law, the customer usually has 6 years.

3)   A third example is a clause which would cause detriment to the customer if it was enforced. An example of this could be where the customer has to pay for any loss suffered by the hire business under the contract even if it was not caused by the customer.

Other examples which might apply to any of the above three categories is if the customer is in default, then default fees or penalties are imposed on the customer which exceed the actual loss suffered by the hiring business. Another example, is where terms appear in language which is poorly expressed, verbose and difficult to understand. These can be captured by the new legislation.

The Eurocar case

An example of how this new legislation is likely to work can be taken from the CLA Trading (Europcar) case, which was decided when the legislation only applied to consumers – that is, before its extension to small business customers (which takes place on 12 November 2016).

Europcar made representation about a “Damage Liability Cap”. It said that the maximum amount payable by the customer to Europcar if a vehicle suffered loss or damage was $3,650.

However, the fine print indicated that this was not an absolute cap. There were a number of circumstances in which it did not operate.

Those circumstances included where the overbody or underbody of the car was damaged, or if there was water damage or if the customer breached the car rental agreement. In these circumstances, the customer was fully liable for the losses or damage incurred.

In addition even if the loss or damage was not the customer’s fault, the customer was still liable to Europcar to make good the loss or damage.

The ACCC

The ACCC instituted proceedings against Europcar, seeking a declaration that the standard form contract entered into with its customers included unfair terms.

Eurocar went down

Europcar was unable to show that the terms in the standard form contract were reasonable to protect its own interests and so the Court concluded that they were unfair terms.

Not only was the car rental agreement declared void, but also the Court ordered that a corrective statement had to be published. In addition, Europcar was ordered to pay the ACCC’s costs which totalled $65,000. Furthermore, it was ordered to pay a fine of $100,000.

Near enough is not good enough!

Many businesses include broad terms in their hire/rental agreements with their customers, hoping that the term will protect them from various risks. However these terms are often misleading, harsh and inflexible.

Consequences

The consequences for a business, as seen in the Europcar, case can be significant. A contract can be declared void, causing parts of the contract or the whole contract to be unenforceable. The worst case scenario is that the ACCC will ask the Court to impose on the business penalties and costs orders. 

The perfect equipment hire contract

An ideal hire/rental agreement will only include terms that are reasonably necessary to protect the legitimate interests of the business and the terms will be succinct and easily understood by customers.

Conversely, if you are the customer – that is, a small business entering into a cross-hire agreement, you will also be protected under the Act from any unfair terms imposed by ‘big brother’. 

Leigh Adams Equipment Hire Lawyers can help!

To prevent these potentially ghastly consequences from being experienced by your business, Leigh Adams Business Lawyers can identify the business risks that you may face so that your business is adequately protected from the risk of breaching the Act. Our North Sydney business lawyer Leigh Adams is waiting for your call on 02 99640022 or your email on: enquiries@lalawyers.com.au.

Leigh Adams Business Lawyers North Sydney.

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