Australia: Extension of unfair contract terms protection to small businesses - many franchise agreements likely to be caught

The Federal Government has released an exposure draft of proposed legislation that would extend consumer protections against unfair contract terms to small business contracts that are standard form and valued less than a prescribed threshold (the Exposure Draft). You can find a copy of the Exposure Draft and other key documents here.

Given the definition of a "small business contract" in the Exposure Draft, it is likely that many franchise agreements (which are often presented by franchisors to franchisees as standard form contracts) will be subject to the new regime.

Notwithstanding the protections already afforded to franchisees under the Franchising Code of Conduct (including the new good faith obligation and provision for compensation for goodwill), the Government has formed the view that there is still the need for a mechanism that provides for a general review of unfair contract terms.


If the Exposure Draft (which proposes amendments to the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth)) is ultimately passed, enforcement action may be taken in respect of any "unfair" terms in standard form small business contracts.

If a court finds that a term is unfair it is open to the court to make a range of orders, including declaring the term or (if the contract cannot operate without the term) the entire contract to be void. Civil penalties are not available.


Only "standard form" "small business contracts" will be affected by the proposed changes.

The factors that may be taken into account in identifying a "standard form contract" are already set out in section 27 of the ACL and include whether the contract was prepared prior to any discussion of the transaction between the parties and whether the other party was given an effective opportunity to negotiate the terms of the contract.

A contract for the supply of goods or services (or the sale or grant of an interest in land) will be taken to be a "small business contract" where the following two criteria are satisfied:

Either party to the contract employs fewer than 20 people (at the time the contract is executed)

Full-time, part-time and casual employees (employed on a regular or systematic basis) are counted on a head count basis (regardless of hours worked or workload).

The "upfront price" payable under the contract:

  • does not exceed $100,000; or
  • if the contract duration is more than 12 months, the upfront price payable does not exceed $250,000.

The "upfront price" is defined in s 26(2) of the ACL to mean "consideration that:

  1. is provided, or is to be provided, for the supply, sale or grant under the contract; and
  2. is disclosed at or before the time the contract is entered into,

but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event."

On this basis, the "upfront price" payable under a franchise agreement could include any fees or other consideration:

  • payable on execution of the contract (for example, an initial franchise fee and contributions to fit out);
  • payable over the life of the contract, as long as it is disclosed on (or before) execution of the contract and not contingent on some later event (for example, a specified annual training fee, although it seems that a royalty payable as a percentage of revenue may not be taken to be an "upfront price" as its dollar amount is not known on execution); and
  • payable to a third party under the franchise agreement (for example, licence fees for third party software provided they are payable under the franchise agreement and not under a separate licence agreement).

In considering the impact of the proposed new regime, franchisors will need to identify the "upfront price" payable under their franchise agreements and whether they or their franchisees would be taken to be a "small business".

If the two criteria are satisfied then any unfair term in a standard form franchise agreement will be at risk of being unenforceable.


Section 24 of the ACL defines an "unfair" term as one that:

  • causes a significant imbalance in the parties' rights and obligations under the contract;
  • would cause detriment (whether financial or otherwise) to a party if it were to be relied on; and
  • is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the term.

Section 25(1) of the ACL also already includes a list of the sort of terms that may (depending on the circumstances) be unfair.

The Explanatory Materials released by the Government with the Exposure Draft also includes examples of the sorts of contract terms which were identified as potentially being unfair by parties making submissions on the proposed new regime. In the context of franchise agreements, these include terms permitting:

  • the franchisor but not the franchisee to terminate the contract;
  • compulsory acquisition of a franchise by a franchisor at less than market rate;
  • liquated damages payable to a franchisee that do not reflect a genuine pre-estimate of loss; and
  • the franchisor to unilaterally change obligations under the contract.


The closing date for submissions on the Exposure Draft is 12 May 2015.

Following the consultation process, the draft legislation will be finalised and introduced into Parliament. On the current drafting of the Exposure Draft, if the legislation is passed a 6 month transition period will be allowed from the date of Royal Assent.

The Government has indicated that it expects the amendments will be in effect by early 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.