Unfair Contract Terms Reforms for Small Businesses

December 7, 2015

 

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).

 

The ACL is the national law for fair trading and consumer protection. A small business, for the purpose of these reforms, employs fewer than 20 persons, excluding casual employees not employed on a regular or systematic basis

 

Meaning of a small business contract

 

The new law is intended to protect small businesses from unfair terms in standard form contracts, which are usually offered on a “take it or leave it” basis. Factors to consider in deciding whether a contract is in a standard form include whether a party is required to either accept or reject the terms of the contract in the form in which they were presented and whether a party was given an effective opportunity to negotiate the terms of the contract. Business to business credit contracts and telecommunications contracts are examples of relevant standard form contracts.

 

The law will apply to a standard form contract, where at least one of the parties is a small business, that is:

 

  1.  entered into, renewed on or varied after 12 November 2016;

  2.  for the:

  • supply of goods or services, or

  • the sale or grant of an interest in land; and

  3.   valued at an upfront price that does not exceed:

  • $300,000 for contracts up to 12 months long, or

  • $1 million for contracts longer than 12 months.

 

What types of terms does the government consider unfair?

 

The new law will allow a court to declare void a term within a standard form small business contract that is "unfair". Currently, under section 24 of the ACL, a term is unfair if it:

 

  • causes a significant imbalance in the parties' rights and obligations under the contract;

  • would cause detriment (financial or otherwise) to a party if it were to be relied on; and

  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term

 

The legislation reinforces the onus to undertake due-diligence for high-value transactions and a number of contracts are excluded from the new legislation, for instance, small business contracts that are covered by another law that is enforceable and equivalent.

 

Businesses have less than 12 months to review their standard form contracts. Jenkins Legal Services can advise in this area and assist businesses with reviewing the terms of their contract documentation which may include standard form contracts, such as standard terms and conditions to supply agreements.

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