Impact of unfair terms on the sports industry: Changes on the horizon

Posted in Dispute resolution, litigation and investigations Regulations

Authored by: Peter Mulligan, Mitchell Kelly and Matthew Fonti

A considerable number of fans, semi-professional organisations and sports businesses will have become, at the very least, familiar with the phrase ‘unfair contract term’ since new protections were introduced in July 2010 (UCT Protections). To jog your memory, these protections were embedded in the Australian Consumer Law (ACL)[1] to further protect consumers (and later ‘small businesses’ in 2016)[2] with respect to standard form contracts. Please see Appendix A at the bottom of the page for some examples of potentially unfair contract terms.

Generally, a standard form contract can be understood as a binding agreement prepared by one party (a business) to the contract without the ability for negotiation by the counterparty, being the consumer or small business. Given the propensity for a material difference in bargaining power, these contracts are usually offered on a ‘take it or leave it’ basis by the larger business.

Despite the legislative efforts to correct the perceived imbalance in rights and obligations, stakeholders have indicated, in the response to a recent Commonwealth Department of Treasury (Treasury) Consultation Regulation Impact Statement,[3] that improvements to clarify the application of, and accessibility to, the UCT Protections are needed. On 6 November 2020, Commonwealth and state and territory consumer affairs ministers agreed to strengthen the existing UCT Protections.[4] The Treasury’s Decision Paper (Decision Paper), also released in November, is said to identify the options that yield the greatest net benefit for the community.[5]

This blog will set out the Treasury’s apparently favoured options and review its potential meaning for stakeholders in the sports industry and those who support it.

The ‘Preferred’ Options

To address some of the ongoing problems with standard form contracts, the Decision Paper outlines certain options which are preferred having regard to stakeholder feedback and a regulatory impact assessment. This includes the following potential changes which may have significance for the sports industry:

Option

Potential change

Imposition of a civil penalty

In addition to the court being able to find that a term is ‘unfair’, the courts could also apply a civil pecuniary penalty for the contravention. If implemented, the appropriate penalty will depend on the maximum amount set under the law and the circumstances on a case-by-case basis.

Terms not automatically void

Where a court determines that a contract term is ‘unfair’, a proposed amendment would provide discretion to the Court to decide on the appropriate remedy, such as varying the term, rather than the present position of it being rendered automatically void.

Rebuttable presumption in similar circumstances

The ACL would be amended to introduce a rebuttable presumption that a contract term is unfair if, in a separate case, the same or a substantially similar term has been used by the same entity or in the same industry sector and declared by a court to be unfair. The contract-issuing party would be able to rebut this presumption by producing evidence to demonstrate why the term was not unfair in the particular circumstances of the case.

Expanding the ‘small business contract’ definition

The threshold for UCT Protections for a small business contract would change from the current less than 20-person headcount to a less than 100-person headcount or a less than $10 million annual turnover threshold.

Removal of contract value threshold

The requirement for the contract’s upfront price payable to be no more than $300,000 or $1 million (if it is for more than 12 months) for protection under the ACL would be removed altogether.

Meaning of ‘effective opportunity to negotiate’

The ACL would be amended to further clarify the types of actions which do not constitute an ‘effective opportunity to negotiate’ in determining whether a contract is a ‘standard form contract’. For example, an opportunity to negotiate minor amendments to a contract would not appear to be sufficient to disprove the presumption that a contract is a ‘standard form contract’.

Impact on the Sports Ecosystem

These proposed amendments to the ACL will have some direct and indirect consequences for those involved in the administration, facilitation and sponsorship of sporting events and competitions at all levels. By way of example:

  • Tickets: The ticket conditions which govern the purchase or acceptance of tickets to attend venues and stadiums that host games and matches may face increased scrutiny given the possible introduction of the rebuttable presumption. For example, we sometimes see in ticketing terms and conditions a clause which gives the seller the unilateral right to add, withdraw or vary performers at advertised events after the ticket is sold. Such a term may be considered unfair according to Australian Consumer Law guidance.[6] If such a clause was found to be unfair by a court, the development of a rebuttable presumption under the proposed new laws could necessitate material changes to how these standard form contracts are written.
  • Memberships: The membership agreements that underpin a large portion of revenue for teams and clubs may similarly require careful review to ensure they do not fall foul of the ACL. Notably, corporate memberships should also be reconsidered given the possible expansion of the thresholds under the definition of ‘small business contract’ to include a headcount of 100 persons, or less than $10 million annual turnover threshold.
  • Sponsorships: Organisations, teams and venues which rely on sponsorship money and/or offer sponsorship opportunities to individuals and small businesses should have regard to whether the relevant agreements may become ‘standard form contracts’ given the proposed changes outlined above. Entities that use standard contract templates for sponsorship agreements should consider whether they should give the counterparty an ‘effective opportunity to negotiate’ in circumstances where that party falls under the proposed expanded definition of ‘small business contract’.
  • Suppliers: The extensive network of contracts with sole traders and small businesses which provide goods and services such as equipment, nutrition and medical services to facilitate sporting events and competitions may also be caught given the contemplated changes to the ‘small business contract’ definition and removal of the contract value threshold.

The possible consequence of a substantial civil penalty for one or multiple unfair contract terms in any of the standard form contracts which govern the many different business-to-consumer and business-to-business relationships is a startling prospect, especially in an industry with tight margins and numerous contractual relationships.

Takeaways

As a next step, we understand that the Treasury will develop exposure draft legislation for public consideration which will allow another opportunity for stakeholders to comment on the proposed reforms.

In the interim, we recommend that organisations in the sporting ecosystem which rely on standard form contracts:

  • review the contracts through the lens of whether any term may be unfair on a consumer or small business where they do not have the effective opportunity to negotiate;
  • seek advice on how to draft terms which contemplate the proposed requirements when entering into new standard form contracts, especially long-term arrangements;
  • assess whether any previously excluded contracts may be caught by changes to the meaning of ‘small business contract’ and/or removal of the upfront price payable threshold if renewed;
  • undertake a risk assessment of the inclusion of certain, possibly unfair, terms versus the potential of incurring substantial penalties; and
  • remain vigilant for further developments in this space including the release of draft legislation.

Our team has extensive experience in dealing with unfair contract terms and is closely monitoring the changes to the ACL to keep you up to date. Please reach out to Peter Mulligan, Mitchell Kelly or Matthew Fonti if you have any questions about this article.

Appendix A – Examples of possible unfair contract terms

Type of term

Example of content which may potentially be considered unfair

Unilateral variation

Right to vary all or some of the charges payable immediately by customers.

Automatic renewal

Automatic renewal at standard rates unless the customer gives notice of cancellation no less than 30 days before the renewal date.

Disproportionate termination

A company has significant rights of termination with no corresponding rights for the customer.

Termination payment

If a company chooses to exercise its rights to terminate the contract then the customer must pay the company an amount which includes the unpaid balance of the charges or fees.

Non-reciprocal obligation

A company is not liable to the customer for any delay or non-performance of its obligations arising from a defined force majeure event, but there is no reciprocal right for the customer.

[1] Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010 (Cth).

[2] Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth).

[3] The Treasury, Enhancements to Unfair Contract Term Protections <https://consult.treasury.gov.au/consumer-and-corporations-policy-division/enhancements-to-unfair-contract-term-protections/>

[4] Australian Consumer Law, Meeting of Ministers for Consumer Affairs Friday 6 November 2020  <https://consumer.gov.au/consumer-affairs-forum/communiques/meeting-12-0>

[5] The Treasury, Enhancements to Unfair Contract Term Protections: Regulation Impact Statement for Decision (September 2020) <https://treasury.gov.au/sites/default/files/2020-11/p2020-125938-ris.pdf>

[6] Australian Consumer Law, Preventing unfairness in event ticketing terms: A guide for legal practitioners and consumer advocates

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