On 20 October 2015 the Treasury Legislation Amendment (Small
Business and Unfair Contract Terms) Bill 2015 passed both
houses of Parliament. This means that the unfair contract term
provisions set out in the Australian Consumer Law and
Australian Securities and Investment Act 2010 (Cth) will
now also extend to small businesses. Therefore, moving forward, if
you operate a small business (as defined below) or contract with
small businesses then it is important to consider these provisions
when drafting and negotiating standard form contracts.
IS MY BUSINESS A SMALL BUSINESS?
A business will be classified a "small business" if it
has less than 20 employees.
WHAT CONTRACTS WILL THE LAWS APPLY TO?
The legislation applies to contracts with small businesses which
meet the following conditions:
a standard form contract - where the terms and conditions of a
contract are set by one party and employ standard provisions
(typically there is no negotiation);
the value of the contract is either:
$300,000 or less; or
$1,000,000 or less and the contract has a duration of more than
the contract relates to the provision of goods and services
(including financial products or services) or sale or grant of an
interest in land.
WHEN WILL A TERM BE "UNFAIR"?
Typically, unfair terms in a contract are ones which:
would cause significant imbalance in the parties' rights
are not reasonably necessary to protect the legitimate
interests of the advantaged party; and
would cause detriment to the other party (either financial or
non-financial) if they were enforced.
In determining whether a term is unfair, consideration will also
be given to the fairness of the term in the overall context of the
contract and how transparent (or easy to understand) the term
REMEDIES FOR AN UNFAIR CONTRACT TERM
If a small business considers that a contract to which it is a
party contains an unfair term, then it can commence court
The powers of the court in such proceedings include setting
aside and/or varying part or parts of a contract and, in the case
of contracts involving the provision of products, directing a party
to repair or refund a product.
The risk of a court finding that a particular term is
"unfair" is increased if the advantaged party has
significantly more bargaining power than the small business.
Regulatory authorities such as the ACCC and ASIC may also commence
proceedings on their own volition.
WHAT DOES IT MEAN FOR ME?
If you are a small business owner – consider the new
provisions when negotiating standard form contracts with your
suppliers. If you are a supplier to small businesses:
consider whether your contracts with small businesses fall
within the definition of "standard form";
review your standard form contracts for any potential unfair
terms. If you consider that a particular term may be unfair, then
you should think about how important that term is to your business
and whether it does in fact serve to protect your legitimate
business interests; and
consider whether you need two sets of standard form contracts
– one for small businesses and another for your other
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
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).