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Update on Unfair Contract Terms Reforms for Small Businesses

You may recall that last year we discussed that the Federal Government has introduced unfair terms reforms to protect small businesses through the extension of the consumer unfair contracts provisions of the Australian Consumer Law (ACL) under the Competition and Consumer Act 2010 (Cth).

From 12 November 2016, the existing unfair contract term protections for consumers will be extended to cover standard form small business contracts.

The Australian Securities & Investments Commission (ASIC) has published an information sheet which gives guidance on how the law deals with unfair terms in small business contracts for financial products and services. This is of particular relevance as small businesses enter into standard form contracts every day for financial products and services. ASIC considers that contracts for business loans, credit cards and client or broker agreements, for example, are almost certainly standard form contracts. The information sheets can be located on the following ASIC website:

It will be up to a court to determine whether a contract term is unfair and in deciding whether a term is unfair, a court must consider the extent to which the term is transparent, as well as the contract as a whole. The court may also consider other matters. If a court finds that a term in a standard form contract is unfair, the term is void. The following examples from ASIC contain some small business contract terms that may raise concerns under the unfair contract terms law:

  • large and excessive default fees that appear to exceed the amount required to protect the lender's legitimate interests.

  • automatic roll-over to enter into another fixed-term lease where to exit this new lease, early termination fees apply.

  • the right to unilaterally vary a contract – whereby the lender has the right to vary any term or condition of the contract, including interest or fees, if notice is given in writing.

The responsible Minister has not currently exempted any sectors from the new law, however, the unfair contract terms law does not cover:

  • insurance contracts regulated under the Insurance Contracts Act 1984.

  • the constitutions of companies, managed investment schemes or other kinds of bodies.

ASIC has advised that it expects businesses to use the transition period between now and 12 November 2016 to review contracts for potential terms that would breach the new requirements. Please contact our office if you would like further advice and guidance regarding the changes.


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