When Is a Contract Not Binding?

A contract will not be binding where the conduct of one party to the contract is considered unfair or unconscionable. There are many examples where the law will provide protection to an innocent or vulnerable person. These are the most common situations where a contract may be considered unenforceable or not binding:

1. Misleading and Deceptive Conduct

Contracts are most commonly challenged where there have been misrepresentations or misleading/deceptive conduct. This conduct may have been used to induce another party to enter into a contract. The most common remedy is through the Competition and Consumer Act 2010 (Cth).

2. Duress

Duress occurs when one party to a contract exerts pressure on the other party and that pressure causes the other party to enter into the contract. Duress can take many forms such as illegal or economic threats. For example, an essential supplier refuses to provide goods unless the party agrees to certain terms and conditions.

3. Illegality

Where a contract is prohibited by statute or common law then it will be unenforceable. For example, a contract with someone to commit a crime will be illegal.

4. Unfair Terms

The Australian Consumer Law contains a framework where terms contained in a consumer contract or small business contract may be void. See the ACCC guide to unfair contract terms contains some examples of case studies.

Is my contract covered by the Australian Consumer Law?

To be void under the Australian Consumer Law, you must make sure that your type of contract is covered by the provisions. These contracts are covered by the Australian Consumer Law:

1. Consumer contracts

A consumer contract is a contract for the supply of goods or services or the sale or grant of an interest in land “to an individual whose acquisition of the goods , services or interest is wholly or predominantly for personal, domestic or household use or consumption”.

This means that the person acquiring the goods, service(s) or interest is doing so for personal use or consumption and not as part of carrying on an enterprise. Follow the link, for an explanation of consumer contracts.

Small business contracts

A small business contract is classified by section 23(3) of the Australian Consumer Law:

1. the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
2. at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
3. either of the following applies:
   1. the upfront price payable under the contract does not exceed $300,000;
   2. the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.

Conclusion

A contract will not be binding where there is misleading or deceptive conduct, duress, illegality or unfair terms. A number of other conditions can make a contract unenforceable. Therefore, it is worth checking whether the criteria of a valid contract <https://www.lordlaw.com.au/commercial-contract-requirements/> are present in your contract.

If you have any concerns about whether your contract is binding, please contact our team today at (03) 9600 0162 or email infor@lordlaw.com.au to learn how we can help or to get a quote.

About us

Lord Commercial Lawyers is a commercial and business-focused law firm based in the Melbourne CBD. We work with businesses and individuals to help them achieve their legal and commercial goals.