The Federal Government has committed to extending the unfair
contract terms legislation to cover small businesses which is
intended to come into force in 2016.
The Bill proposes to change the Treasury Legislation Amendment
(Small Business and Unfair Contract Terms) Bill 2015 and aims to
address the potential for unfair detriment where unfair contract
terms are enforced against small businesses. It will also amend the
Australian Securities and Investments Commission Act 2001 (ASIC
Act) and the Competition and Consumer Act 2010 (CCA). The Bill
passed both houses in October and was agreed to on 12 November 2015
with the amendments to take affect 12 months later, allowing a
period of transition.
A contract will be a small business contract if it is a standard
form contract for the supply of goods or services, or the sale or
grant of an interest in land, where, at the time the contract is
entered into, at least one party to the contract employs less than
20 people, and where the upfront price payable under the contract
doesn't exceed $300,000 or, in the case of contracts longer
than 12 months, less than $1,000,000.
As with the existing consumer contract provisions a standard
form small business contract will apply where:
One of the parties has all or most of the bargaining power and
the other party is required to either accept or reject the terms of
the contract without negotiation or amendment; and
A term of a contract will be unfair if it causes a significant
imbalance in the parties' rights and obligations under the
contract, would cause detriment to a party if it were relied on and
is not reasonably necessary to protect the legitimate interests of
the party who would be advantaged by the term.
Examples of unfair terms include:
Where one party is permitted to vary, terminate or renew the
contract but the other is not
Where one party is permitted to vary the price payable under
the contract and the other has no right to terminate
Where one party is permitted to unilaterally vary the goods or
services to be supplied under the contract.
If a term of a standard form small business contract is void,
the rest of the contract will continue to bind the parties, to the
extent that it is capable of operating without the unfair term.
The existing unfair contract terms provisions will also apply to
small business contracts entered into after the amended Act
How this may impact you
During the transitional period it's important to review your
contracts to determine if they are standard form small business
contracts. If they are, look carefully at the terms of the contract
- if there is potential for them to fall foul of the changes to the
legislation then amend or delete terms that may be considered
unfair where required.
It's also wise to identify any existing contracts that will
be caught by the changes.
It is also a good opportunity to review your position in
relation to dealing with small businesses and decide whether to
have a specific contract applicable only to small businesses.
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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