Small businesses, and those that deal with them, will
soon have to review all of their standard commercial arrangements
to ensure their terms are not unfair.
A Bill amending the Competition and Consumer Act 2010
(Cth) and Australian Securities and Investments Commission Act
2001 (Cth) to extend unfair contract term protection laws to
the small business sector passed the House of Representatives on 20
October 2015. These laws are an extension of the existing
protections given to consumers since 1 July 2010.
Under the new laws, courts will have the power to declare that a
term of a standard form small business contract is void if the term
is found to be unfair. If the contract cannot operate without the
term, the entire contract can be declared void. Applications to the
court can be made by a small business that is a party to a small
business contract, by the ACCC or by state regulators.
Small business contract
Under the new definition, a contract is a 'small business
at the time the contract is entered into, at least one party to
the contract is a business that employs fewer than 20 (non-casual)
either of the following applies:
the upfront price payable under the contract is not more than
$300,000 – irrespective of the term of the contract; or
the term of the contract is greater than 12 months and the
upfront price is more than $300,000 but does not exceed
A term may be declared unfair if the term:
would cause a significant imbalance in the parties' rights
and obligations under the contract;
is not reasonably necessary to protect the legitimate interests
of the party who would be advantaged by the term; and
would cause detriment (whether financial or otherwise) to a
party to the contract if the term were applied or relied on.
All three tests must be satisfied.
Standard form contract
There is no express definition of a 'standard form
contract', however, characteristics of a standard form contract
generally include situations where:
one party prepared the contract before discussions between the
one party was required to either accept or reject the contract
one party was not given an opportunity to negotiate; or
the terms of the contract are not specific to one party or to
the particular transaction.
After the Bill receives royal assent, there will then be a
twelve month grace period, which should end in late 2016.
Immediately following the twelve month transition period, the
new legislation will apply to:
new small business contracts;
pre-existing small business contracts that are renewed;
the terms of pre-existing contracts that are varied.
The new legislation is far reaching and many businesses will
have to review their standard form contracts, such as terms of
trade and supply and distribution agreements, or risk falling foul
of the unfair terms provisions. The new legislation will affect a
large number of industries, particularly those that rely heavily on
standard form contracts, such as the telecommunications, transport
and franchising industries.
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
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.
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