Legislation passed in both houses of Parliament yesterday will
extend the consumer unfair contract term protections in the
Australian Consumer Law (ACL) and the Australian Securities and
Investments Commission Act 2001 (ASIC Act) to standard form
small business contracts. The Treasury Legislation Amendment
(Small Business and Unfair Contract Terms) Bill 2015 (Cth) is
awaiting Royal Assent.
While the legislation won't be in effect for at least 12
months, businesses that contract with small businesses should
review their standard form agreements now to ensure they don't
include unfair terms as defined in the ACL and ASIC Act.
What is a small business contract?
A contract is a small business contract if:
The contract is:
for the supply of goods/services or a sale/grant of an interest
in land, under the ACL, or
is a financial product or for the supply (or possible supply)
of financial services under the ASIC Act.
At the time the contract is entered into, at least one party to
the contract is a business that employs fewer than 20 persons
(excluding casual employees, unless they are employed on a regular
and systematic basis).
The upfront price payable under the contract (excluding
interest) does not exceed $300,000 or $1,000,000 for contracts with
a duration of more than 12 months.
Some standard form small business contracts may be exempt, if
they are subject to prescribed laws offering equivalent
When will the changes come into effect?
The operative provisions of the Bill will begin 12 months after
Royal Assent and will apply to contracts entered into on or after
The amendments may also apply to contracts entered into before
the Assent date, if the contract is renewed or a term of the
contract is varied after the amendments come into
What are the potential consequences?
Even where unfair terms of standard form small business
contracts are void, the contract will continue to bind the parties
if it is capable of operating without the unfair terms. An unfair
term is not void if it defines the contract's main subject
matter, sets the upfront price payable under the contract or is a
term required, or expressly permitted, by a Commonwealth, state or
The small business, that is a party to the contract, or the
relevant regulator may apply to the court for a declaration that a
contract term is unfair. The ACL and ASIC Act do not permit a
non-small business party to apply for this type of declaration
(notwithstanding that an application could be made for an unfair
term of a consumer contract), putting larger businesses that
contract with small businesses particularly at risk.
We would like to acknowledge the contribution of Matthew
Palmer to this article.
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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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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