Be Aware – Unfair Contract Terms Extended to Protect Small Business


This paper was co-authored by Kellie Cook, Senior Associate (previously with Kott Gunning Lawyers)

From 12 November 2016, the laws providing protection against unfair contract terms to individual consumers have been extended to protect small businesses.

The extension of these protections are a result of amendments made to the Australian Consumer Law (contained in Schedule 2 of the Competition and Consumer Act 2010) and the Australian Securities and Investment Commission Act 2001.

The changes made apply to standard form contracts:

  • entered into or renewed on or after 12 November 2016, but it is important to note that if a contract which existed before that date is varied on or after 12 November 2016 the law applies to it as well;
  • where at least one of the parties is a small business, being a business that employs less than 20 people (including casual employees employed on a regular and systematic basis); and
  • the upfront price payable under the contract is no more than $300,000, or if the contract is for more than 12 months no more than $1,000,000.

The law does provide guidance as to:

  • What is a standard form contract – in short it is considered to be in a standard form when it is prepared by one of the parties with little or no ability or opportunity for the other party to negotiate/amend the terms of the contract; and
  • What is an unfair contract term – in general, one that causes significant imbalance between the parties, is not reasonably necessary to protect the interests of one party and would cause detriment if relied on.

Advice should be sought on the individual circumstances of a contract, as there are a number of exceptions to both the contracts that these laws apply to and the terms within a contract that are subject to the law.

Recommendation

What is important to remember is that if a standard form contract is entered into and a Court or Tribunal determine that the contract includes an unfair term that unfair term will be void and won’t apply.

When preparing or entering into a contract which may be a standard form contract, it is equally important for consumers, small businesses and any party preparing a standard contract to seek advice on whether the law applies to the contract, and if so to ensure that the contract does not include provisions that may be unfair.

The above is only a brief explanation of what may constitute a standard form contract and unfair contract term, but for more detailed information on this please see the article Australian Consumer Law Update: Extending Unfair Contract Term Laws to Small Businesses

If you would like a standard contract reviewed or have any queries on the changes or how they apply to your business, please contact partner Emma Leys on (08) 9321 3755.   

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.