Key Risks to Manage in Contract Law

Key Risks to Manage in Contract Law

Contract law in Australia, governed by common law principles and statutes like the Australian Consumer Law (ACL), forms the foundation of business agreements. Poor contract drafting, negotiation, or management can expose businesses to significant risks, including disputes, financial losses, and regulatory penalties. With recent expansions to unfair contract terms (UCT) protections—including substantial penalties introduced in 2023—non-compliance is a growing concern for standard form contracts, especially those involving small businesses or consumers.

Here are the primary risks, based on common issues identified by regulators (e.g., ACCC, ASIC) and business practices:

• Unfair Contract Terms in standard form contracts that create significant imbalance, such as unilateral variation, broad termination rights, or excessive limitations of liability, can be declared void. Since 2023, businesses face penalties up to $50 million (or more) for corporations, plus individual fines. This is a high-priority enforcement area for the ACCC.
• Breach of Contract Leading to Disputes and Litigation Failure to meet obligations due to ambiguous clauses, unclear terms, or misunderstandings can result in lawsuits, damages, or specific performance orders. Common triggers include vague wording, implied terms not addressed, or reliance on informal agreements.
• Financial Losses Missed renewals, auto-rollovers, penalties for non-performance, or unfavourable payment terms can lead to revenue leakage (estimated at up to 9% of annual revenue in poor management cases) or unexpected costs.
• Non-Compliance with Laws and Regulations Breaches of ACL (e.g., misleading representations), privacy laws, competition rules, or industry-specific requirements (e.g., Franchising Code) can attract fines, injunctions, or enforced remedies. Unfair terms or anti-competitive clauses are frequent issues.
• Reputational Damage Public disputes, ACCC investigations, or perceived unfair practices erode trust with customers, suppliers, and partners, leading to lost opportunities and negative publicity.
• Operational Inefficiencies and Missed Obligations Poor tracking of key dates (e.g., expirations, milestones) or disorganised storage results in overlooked commitments, auto-renewals at unfavourable rates, or inability to enforce rights.
• Invalid or Unenforceable Contracts Lack of essential elements (offer, acceptance, consideration, intention), use of generic templates not suited to Australian law, or mistakes (e.g., mutual misunderstanding) can render agreements void or unenforceable.
• Third-Party and Security Risks Inadequate data protection clauses or failure to address privacy obligations (e.g., under the Privacy Act) can lead to breaches, while supplier non-performance exposes businesses to downstream liabilities.
• Limitations on Liability and Indemnities Overly broad exclusions or one-sided indemnities may be struck down, leaving businesses exposed to full liability for breaches, including consequential losses.

These risks emphasise the need for clear, balanced drafting and ongoing management. Proactive steps—such as regular reviews, legal advice, and robust processes—help ensure enforceability and compliance. Many Australian businesses reduce exposure by tailoring contracts to ACL and UCT requirements. Complete Corporate Services provides expert support in contract drafting, review, and management to minimise these risks, ensure legal robustness, and support smooth business operations. Seeking professional guidance early can prevent issues from escalating.