Unfair Contract Terms and Deemed Acceptance: The Enforceability of Clauses

Partner Matthew Lilly and the Employment team discusses this important topic.

Clauses that attempt to bind parties to contractual terms through their conduct, commonly known as “deemed acceptance” clauses, are prevalent across many service industries. These clauses often assert that a party has agreed to the service provider’s terms simply by engaging in some form of conduct with them. However, such provisions face significant legal hurdles under Australian Consumer Law (ACL)  as well as the Unfair Contract Terms (UCT) regime.

This article outlines the risks associated with deemed acceptance clauses for both services providers and consumers. Service providers should be cautious when relying upon such clauses and consumers should be careful when engaging with services without understanding or formally agreeing to the applicable terms and conditions.

Contract Law Fundamentals v Deemed Acceptance

Under general contract law principles, the formation of a binding contract requires clear evidence of an offer and its acceptance. The concept of deemed acceptance is different from the traditional “offer and acceptance” model, as it focuses on the objective determination of the parties’ conduct or circumstances, rather than explicit communication of acceptance.  For instance in Westgyp Pty Ltd v Northline Ceilings Pty Ltd, the court found that acceptance could be inferred from the conduct of the parties, even without explicit assent.

This principle ensures that contracts can still be recognised in situations where formalities are absent, but where the parties’ actions demonstrate mutual agreement. However, reliance on such conduct can be unfair in circumstances where the other party is unaware that their actions are being interpreted as acceptance of hidden or uncommunicated contractual terms.

The Unfair Contract Terms (UCT) Regime

Deemed acceptance can be considered unfair under the  UCT regime if it meets the criteria for unfairness as outlined in  ACL.  A term is deemed unfair if it:

1. causes a significant imbalance in the parties’ rights and obligations under the contract,
2. is not reasonably necessary to protect the legitimate interests of the advantaged party, and
3. causes detriment (financial or otherwise) to a party if it were to be applied or relied on.

Deemed acceptance clauses often operate by binding a party to the terms or obligations without requiring explicit agreement, which can create a significant imbalance. For example, if a clause allows one party to unilaterally impose new terms or conditions without providing the other party with a genuine opportunity to review or reject them, then this could be  considered as unfair.

The transparency of the term and the contract as a whole are critical factors in assessing unfairness. A deemed acceptance clause that is not expressed in plain language, is difficult to locate, or is not readily available to the affected party may be deemed non-transparent. Even if a term is transparent, it can still be unfair if it imposes obligations or risks disproportionately on one party.

As in many other jurisdictions, the UCT regime in Western Australia applies to standard form contracts that are either consumer contracts or small business contracts. If a deemed acceptance clause is found to be unfair, it will be void and unenforceable, although the rest of the contract may remain binding if it can operate without the incorporation of the unfair term.

Courts may also consider the legitimate interests of the party relying on the clause and whether the clause goes beyond what is reasonably necessary to protect those interests.

Risk of Misleading or Deceptive Conduct

Deemed acceptance can be misleading under Section 18 of the ACL if it is misleading or deceptive or is likely to mislead or deceive, and this prohibition applies broadly to acts, omissions, and even silence where there is a reasonable expectation of disclosure.

This is particularly relevant where a party’s continued engagement with a service is claimed to indicate acceptance of hidden terms. Seeking to enforce such clauses may be considered objectively misleading, especially where the implications of the alleged acceptance are not drawn to the other party’s attention or are concealed in fine print. The lack of clear, affirmative acceptance may therefore constitute misleading conduct in trade or commerce.

Silence or non-disclosure can be particularly relevant in cases of deemed acceptance. If a party’s silence or failure to clarify terms creates an impression that acceptance has occurred under certain conditions, this could be considered misleading.

Examples of Misleading Conduct through Deemed Acceptance

1. Silence Or Inaction Treated As Acceptance

A gym sends a member an email saying their contract will be automatically renewed unless they opt out within 7 days. The member does not respond and the gym charges them for another 12-month contract. Consumers may not realise that silence will be taken as acceptance. The business is assuming consent, which can mislead the consumer into a binding agreement.

2. “Free Trial” Turns Into Paid Subscription Without Clear Notice

A streaming service offers a “free 30-day trial” and requires credit card details. After 30 days, it begins charging a subscription fee without clearly informing the user that this would happen unless they cancel. The consumer may think they are only agreeing to a free trial. If the business doesn’t clearly disclose that payment will begin automatically, this could be misleading conduct.

3. Online “Terms and Conditions” Assume Consent Without Adequate Disclosure

A website says that by continuing to browse, the user agrees to recurring charges or a binding contract, even if no clear affirmative action (like clicking “I agree”) is taken. Consumers may not be aware that simply navigating the site results in a legal obligation. This is likely to mislead or deceive a consumer, especially if material terms are buried or unclear.

Key Case Law Considerations

Western Australia and broader Australian case law shows that courts:

• Look for clear and unequivocal acceptance, as opposed to passive conduct (Eccles v Koolan Iron Ore Pty Ltd (No 3));
• Will not enforce standard terms if the other party was not given a fair chance to consider them (Pro Australia Pty Ltd v Toll Holdings Ltd);
• May imply a contract based on mutual assent, but this is a high bar where deemed acceptance is in play (GB Energy Ltd v Protean Power Pty Ltd; De Bruin v Harris).
• Emphasised the importance of clear mutual agreement when determining whether terms have been accepted by conduct (Marinis v Mrs (Pacific) Pty Ltd).

Practical Implications for Service Providers

If your business uses contracts containing deemed acceptance clauses, consider the following:

• Ensure terms and conditions are communicated clearly and early, before services are delivered;
• Avoid relying solely on passive conduct and seek clear written or verbal confirmation of acceptance;
• Train staff (especially those engaging with clients) to avoid assumptions about a contract being formed;
• Consider reviewing your terms, bearing in mind ACL and recent case law to ensure enforceability.

Clients and Small Businesses should also:

• Be cautious when engaging service providers without reviewing their terms;
• Know that you may not be legally bound by terms you were  not clearly informed of;
• If you suspect a contract was imposed unfairly or misleadingly, legal remedies may be available under the ACL.

Conclusion

While deemed acceptance clauses may seem convenient, they are often on shaky legal ground. Courts are increasingly wary of enforcing terms that are imposed without clear and informed agreement, whether that be through ordinary contract principles, the UCT regime, or the prohibition against misleading conduct. Both service providers and clients should therefore approach such clauses with caution.

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*The information provided in this website serves as a general guide and does not constitute legal advice. It is based on our research and experience at the time of publication. Please consult our knowledgeable legal team for any specific inquiries or advice relevant to your circumstances, as the content may not have been updated subsequently.