New law for consumers and franchisees

1 July 2010

The laws to strengthen protection against unfair terms in standard form contracts; and changes to the Franchise Code mean franchisees will have more relevant information to assist prospective franchisees make more informed decisions before entering an agreement. Partner Andrew Nicholson reports.

The new unfair contracts laws under the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (ACL) come into effect on 1 July 2010.

The unfair contract provisions contained in the ACL will apply to standard form contracts between corporations and individuals under which goods or services are supplied to an individual for personal, domestic or household use or consumption.

The ACL will not regulate business to business contracts or insurance contracts.

Unfair Contract Terms

A term will be unfair if:

it would cause significant imbalance in the parties' rights and obligations arising under the contract
it is not reasonably necessary in order to protect the legitimate business interests of the party who would be advantaged by the term, and
it would cause detriment to a party (financial or otherwise) if it were to be relied upon.

ACCC Chairman Graeme Samuel explains, "Phone, internet, gym, power and travel - everyone has entered into a standard form contract at some stage. From today the ACCC and other agencies will enforce new national laws which protect consumers from contract terms which are unfair. These new laws are designed to protect consumers where they cannot effectively bargain and are offered contracts on a take it or leave it basis.

Under the law only a court can determine whether a term in a standard form consumer contract is unfair. A term found by a court to be unfair is not binding on the consumer. However, if the contract can still operate without that term, it will.

Franchising Code of Conduct

The changes to the Franchising Code of Conduct require that franchisors must disclose more information to assist prospective franchisees to make informed decisions. The dispute resolution procedures under the Code have also been strengthened.

Mr Samuel said franchisors must now give six months notice if they are not going to renew a franchise agreement if the term of the agreement is six months or longer, which is important given many franchisees don't realise their agreements aren't necessarily ongoing.

The ACCC has developed a number of new educational tools to explain the changes to franchisors and franchisees, and updated its website to ensure all parties to a franchise agreement understand the requirements.

Mullins Lawyers can provide assistance in the application of the new unfair contracts laws.

For further information, please contact:

Andrew Nicholson | Partner
Mullins Lawyers
t +61 7 3224 0261
f +61 7 3224 0333
anicholson@mullinslaw.com.au