Guide 5 of 5 · Customers
Changing terms with customers when the business changes
Rests on: the ACCC’s guidance on contracts and on variation terms in standard form contracts.
The Australian Consumer Law names a term that lets one party, but not the other, vary the contract as an example of a term that may be unfair. The ACCC says that from 9 November 2023, proposing, using or relying on unfair terms in standard form contracts is banned and penalties apply. The ACCC’s guide says a variation clause is more likely to be acceptable if either party can use it, and only for legitimate reasons stated in the contract clearly and specifically enough that the business cannot use it at will.
General information about the unfair contract terms law, not legal advice about any contract. Only courts can make final decisions about whether a term is unfair. The ACCC is the official place to check.
01 Which contracts, and which changes
The law reaches standard form contracts. The ACCC describes one as a pre-written contract a business uses for every customer, who cannot change all or most of its terms and must accept it as it stands or walk away. A contract is presumed to be standard form, so the party that prepared it must prove that it is not.
The ACCC says the 9 November 2023 changes apply to standard form contracts made or renewed on or after that date, and to terms varied or added from that date. Where a term is varied or added from that date, the changes to how a standard form contract is identified apply to the whole contract.
Much of the ACCC’s detailed guidance on variation terms is in its guide for businesses and legal practitioners. It is dated March 2016 and covers only contracts with consumers. It was written before the 2023 changes, so its statement that the law imposes no penalties on a business that includes an unfair term is no longer current.
02 Four kinds of change the law names
Section 25 of the Australian Consumer Law lists examples of terms that may be unfair. Four of its examples map onto the changes a business in transition is most likely to want.
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Changing the terms
Section 25(d): “a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract”. The ACCC’s guide says such a term may be unfair if it could make a consumer accept increased costs or penalties, new requirements or reduced benefits.
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Changing the price
Section 25(f): “a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract”. The guide adds that in some circumstances a term letting the business “set or vary a price after the consumer has agreed to an amount may be unfair, even if there is a right to cancel.”
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Changing what is supplied
Section 25(g) covers a term letting “one party unilaterally to vary the characteristics of the goods or services to be supplied”. The guide explains the concern: the customer expects what they agreed to buy, “not merely something similar or equivalent.”
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Handing the contract to someone else
Section 25(j) covers a term letting one party “assign the contract to the detriment of another party without that other party’s consent”. The guide notes that when a business is sold, its contracts with customers are often assigned to the buyer, and that this may be unfair where it harms the customer’s rights.
03 One clause, two contracts
The ACCC’s contracts page shows one extra term changing the answer.
Business A
“Business A provides standard form 3 year contracts for broadband services. A term of Business A’s contract allows it to change the price for the services at any time during the 3 years. The customer is not allowed to end the contract, even if they don’t agree to the price increase.”
In the ACCC’s view this price term is “likely to be” unfair.
Business B
“Business B provides standard form 3 year contracts for broadband services. A term of Business B’s contract allows it to change the price for the services at any time during the 3 years. However, another term of Business B’s contract allows customers who don’t agree to a price increase to end the contract without any penalty.”
In the ACCC’s view the right to leave without penalty balances the price term, so it is “likely to not be” unfair.
04 What the ACCC says balances a variation term
The guide says a unilateral variation clause may be acceptable where, for example:
- the contract spells out clearly when the change can be made;
- the business needs the term to protect its legitimate interests, such as managing costs or risk; or
- the customer can cancel without penalty if the change is to their detriment.
For changes to what is supplied, it describes limiting the clause in advance: setting out clearly the variation and when it might be made, defining how far it can go, or giving the customer a right to end the contract without penalty if the business cannot supply what was agreed. On price, it says a customer is only genuinely free to end the contract if they are not left worse off for having entered it, for example by losing a prepayment.
Notice alone may not settle it. The guide describes an online retailer whose terms let it change its terms and conditions at any time; it amended them to give customers notice, but that did not resolve the ACCC’s concern about changes made after a sale was concluded.
05 When the service itself changes
A change can reach customers through the consumer guarantees as well as the contract. On the ACCC’s page about changes to services, “If the change is a material change to the service the business agreed to provide”, consumers are likely to be entitled to the remedies for a major problem; they are unlikely to be if the business is still largely providing the service it agreed to.
The ACCC says businesses that change their services this way should tell customers about the change as soon as possible. Where the change is material, it says a business should:
- Ask. Seek each customer’s consent to continue with the changed service.
- Release and refund. Cancel the contracts of customers who do not consent, and refund any pre-payments they made.