Keep your eyes peeled for “unfair terms”

KEY TAKE OUTS:

• It has been ten years since provisions of the Australian Consumer Law came into effect, declaring unfair terms in standard form consumer contracts void.
• Restraint of trade clauses found within franchise agreements of Back in Motion Physiotherapy Pty Ltd have been deemed ‘unfair’ under Australian Consumer Law.
• Unfair terms in contracts can be expensive, not only because they could be declared void but also because of the litigation costs and risk to a business’ reputation.

Last month, terms of a franchise agreement between Back in Motion Physiotherapy Pty Ltd (BiM) and its franchisees have been found unfair and the franchisor has submitted an undertaking to the ACCC.

In this matter, individuals whose BiM agreement had concluded and sought to establish their own physiotherapy practice were prohibited from doing so within a 3km radius for three months or a 10km radius for a 12-month period of BiM outlets The effect of the unfair clause effectively “meant that most former franchisees could not operate in many parts of metropolitan areas of Australia because of the existence of other Back in Motion Physiotherapy franchise outlets in those locations”, ACCC Deputy Chair Keogh stated.

The franchise agreements also included a clause which allowed the franchisor to charge the franchisee a ‘buy out fee’ equal to four times their annual royalty fees, if they opted to be released from the unfair restraint of trade.

The Law

Under s 24 of the ACL, ‘unfair’ is defined as a term that would;

• Cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
• not reasonably necessary to protect the legitimate interests (such as assets or securities) of the party advantaged; and
• causes detriment (either financial or otherwise) to the party to which the term applies.

In relation to the matter of BiM, it can be construed that whilst they may have been seeking to protect their interests, it was done in a way that was detrimental to former, current and future signors of a franchise agreement with BiM.

Further, BiM agreed to stop enforcing or relying upon these unfair terms with current and future franchise agreements and will remove them from existing agreements.

Currently, there are no prohibitions or penalties under ACL and the Franchising Code of Conduct on businesses including or relying on unfair contract terms in agreements. Courts however can declare terms to be unfair, resulting in them being void and unenforceable so that they are no longer bound to the parties affected.

If you are concerned with the terms of an existing contract and would like clarification, contact Coutts on either 1300 268 887 or info@couttslegal.com.au and our team is here to assist.