Businesses have 12 months to review their standard form
The current protections for consumers against unfair contract
terms in standard form contracts have now been extended to small
businesses, following the Royal Assent on 12 November 2015 to the
Treasury Legislation Amendment (Small Business and Unfair Contract
Terms) Bill 2015.
the original six month grace period after Royal Assent was
extended to 12 months, which means the law takes effect on
12 November 2016;
the monetary thresholds increased from $100,000 to $300,000 for
contracts up to 12 months long, and $250,000 to $1 million for
contracts longer than 12 months.
The ACCC has already urged businesses to take action now to
review their standard form contracts to ensure compliance with the
new regime before it takes effect.
With the clock now ticking, it is important that businesses take
the necessary steps to understand if and how they might be affected
by the extension of the law to small business contracts, and what
they now need to do to comply.
Policy reason for unfair contract protections for small
The Government was concerned that small businesses, like
consumers, can be vulnerable to unfair terms in standard form
contracts if they are offered contracts on a "take it or leave
it" basis, or lack the resources to understand and negotiate
contract terms. There is potential for small business detriment
where these unfair contract terms are enforced. The new law will
allow a court to declare void a term within a standard form
contract that is "unfair".
Limiting the extension of the unfair contract term protection to
low-value, standard form small business contracts is intended to
support time-poor small businesses entering into contracts for
day-to-day transactions, while maintaining the onus on small
businesses to undertake due diligence when entering into high-value
contracts. The amended provisions will be enforced by the ACCC,
ASIC and State/Territory Fair Trade offices.
More contracts are now caught after Senate
Following the Senate amendments, the new provisions will operate
where a business with fewer than 20 employees agrees to a standard
form contract, and the upfront contract value does not exceed:
$1 million where the contract has a duration of 12 months or
The contract value is defined to be the "upfront
price", which is the consideration provided at, or before the
contract and does not include contingent costs or amounts incurred
for the non-occurrence of a particular event. For example, any
interest payable under a credit contract is not included in the
The number of employees is determined by the total number of
full-time, part-time and casual employees who work on a regular and
The grace period
The new laws will apply to any contracts that are
entered into, renewed or varied after that 12
This gives businesses 12 months to review and update any
existing contracts that may be affected (if renewed or varied after
12 November 2016) and to prepare new standard form contracts.
Existing contracts that are not renewed or varied on or after 12
November 2016 (including contracts that are entered into between
now and 11 November 2016) will not be affected by the new laws.
Business will need to review their standard
Standard form contracts are commonly used in business and are an
efficient and cost-effective option. However, all businesses will
need to consider the enforceability of their B2B standard term
contracts with small business to minimise the risk that various
terms might be declared to be void.
The protections will work in the same way as those that
currently exist under the Australian Consumer Law and the ASIC Act
for standard contract forms.
Thus while there are no fines or penalties for having a unfair
term in a standard form contract with a small business, that term
may be declared void by a court. This removes the voided term from
the contract, while the remainder of the contract continues to bind
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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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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