Small businesses are consumers in their own right. So why
shouldn't they be protected from unfair contracts in the same
way that consumers are? Now, new legislation ensures that David
won't face Goliath without a shield.
Our modern consumer protection laws ensure that consumers are
protected from unfair contract terms. Those laws arose from a
Productivity Commission report in 2008. At that time, the
Productivity Commission also recognised that small businesses face
many of the same issues as consumers – for instance, unequal
bargaining power and lack of resources for negotiating. It
recommended that unfair contract protections should apply similarly
to consumers and small businesses.
Until recently, that recommendation was not acted upon. But on
20 October 2015 the Treasury Legislation Amendment (Small
Business and Unfair Contract Terms) Bill 2015 finally passed
both houses of Parliament. Here's our wrap of the new
provisions, which will likely commence sometime in the New
Businesses with less than 20 employees. This includes full
timers, part timers, and casuals employed on a "regular and
Contracts must satisfy a number of conditions before the new
Form: The contract must be a standard form
contract (the idea is that small business are often presented with
the upfront contract price is $300,000 or less; or
the upfront contract price is $1,000,000 or less and the
contract has a duration of more than 12 months.
the contract is for a financial product or financial
the contract is for a supply of goods or services;
the contract is for a sale or grant of an interest in
the contract was entered into on or after the commencement date
(this date is still unknown at this stage);
the contract was renewed on or after the commencement date;
the contract was varied on or after the commencement.
What is an unfair contract term?
Unfair contract terms are terms which:
would cause a signifiant imbalance in the parties' rights
and obligations arising under the contract;
are not reasonably necesary to protect the legitimate interests
of the advantaged party; and
would cause detriment to a party.
The 'transparency' of the term is a key issue. A useful
touchstone is to ask yourself 'how easy is it to understand
What happens to unfair contract terms?
A party to the contract can commence proceedings in court. The
ACCC, ASIC and fair trading authorities can also commence
proceedings. The court has a variety of powers, including:
declaring that a term is unfair;
declaring parts of a contract to be void;
varying parts of a contract;
refusing to enforce parts of a contract;
directing a party to repair or refund a product provided under
the contract; or
varying or terminating interest in land created by the
What does this mean for me?
If you operate a small business, it is important to be mindful
of these provisions when negotiating contracts. If you have entered
a contract which you think may contain an unfair contract term,
seek legal advice.
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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”
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).