On 24 June 2015, the Federal Government introduced the Treasury
Legislation Amendment (Small Business and Unfair Contract Terms)
Bill 2015 into the House of Representatives. The Bill is in essence
the same as the exposure draft of the legislation released for
public comment in May.
The Bill has been tabled in the House of Representatives, and is
not yet scheduled for debate. Assuming the Government is ultimately
able to pass the legislation through the House of Representatives,
it appears likely that it will not immediately pass through the
Senate. Our best current guess is that it will be referred to a
Senate Committee for further consideration. However the pressure on
the Minister appears to be mainly coming from people who consider
the Bill does not go far enough. The Government has an election
commitment to introduce the legislation, and has to date been quite
strident in resisting submissions arguing that the legislation will
create contractual uncertainty, impact bank lending to small
business, see small business excluded from business opportunities
and create additional compliance cost and disputation.
In simple terms, the legislation seeks to apply the existing
prohibitions on unfair contract terms contained in consumer
contracts (as set out in section 23 of the Australian Consumer Law
(in Schedule 2 to the Competition and Consumer Act 2010) and
section 12BF of the Australian Securities and Investments
Commission Act 2001) to "small business
A "small business contract" is a contract where at
least 1 party is a small business—being, a business with less
than 20 employees. The Government has attempted to restrict the
application of the legislation to what it considers to be low value
contracts, so in the current form of the Bill the legislation will
only apply if either the upfront price payable under the small
business contract does not exceed $100,000, or for a contract with
a duration of more than 12 months the upfront price payable under
the contract does not exceed $250,000. However there appears to be
some lobbying to remove the dollar limit entirely.
Section 27 of the Australian Consumer Law and section 12BK of
the Australian Securities and Investments Commission Act
specify matters a court must take into account when determining
whether a contract is a standard form contract. These include
whether one of the parties has all or most of the bargaining power
relating to the transaction and whether another party was given an
effective opportunity to negotiate the terms of the contract (other
than simply in relation to price and subject matter). The
Australian Competition and Consumer Commission (ACCC) observes
"a standard form contract will typically be one prepared by
one party to the contract and not negotiated between the parties
– it is offered on a 'take it or leave it' basis.
A provision in a small business contract will be considered
it would cause a significant imbalance in the parties'
rights and obligations arising under the contract; and
it is not reasonably necessary to protect the legitimate
interests of the party who would be advantaged by the provision;
it would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.
If a provision is "unfair", the provision is excised,
but the remainder of the contract remains in effect.
Although in due course the courts may well adopt a relatively
narrow definition of "unfair" in the context of an actual
provision in an agreement, it should be noted that some of the
submissions of those supporting the legislation see it targeting
provisions that go to the heart of the commercial bargain –
for example provisions that allow one party to unilaterally set or
amend fees or otherwise amend an agreement or alter commercial
terms. Other provisions some contend are unfair are those that only
allow one party to the agreement to terminate, and that provide
strong and immediate rights of termination to one party, but not
Although the debate is far from over, it seems likely the
legislation will ultimately be introduced sometime next year. Not
only will the legislation apply to new contracts, but it will also
apply to existing contracts that are renewed or varied after the
We recommend that clients begin assessing what contracts they
currently have with small businesses, and begin forming a view as
to the level of their potential exposure to the proposed new
legislation. Retail leases, supply agreements, franchise
agreements, sub-contracting agreements, tender documents, finance
contracts, consultancy agreements and almost every other form of
agreement could be caught. Only insurance contracts, some shipping
contracts, managed investment schemes and company constitutions are
expressly excluded. There is also the possibility of gaining
exclusion by regulation, on the basis that an existing law provides
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Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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