From 12 November 2016, a new law will protect small businesses
from unfair terms in standard form of contracts.
The law will apply to a standard form contract entered into or
renewed on or after 12 November 2016, where:
It is the supply of goods or services or the grant of an
interest in land.
At least one of the parties is a small business (employs less
than 20 people including casual employees employed on a regular and
The upfront price payable under the contract is no more than
$300,000, or $1m if the contract is for more than 12 months.
The new law will also apply to contracts varied on or after 12
A standard form contract is one that has been prepared by one
party to the contract, where the other party has no opportunity, or
little opportunity to negotiate the terms.
The law gives examples of terms that might be unfair including
terms that give one party but not the other party rights to avoid
or limit liability or to terminate or vary the contract. However
only a Court or a tribunal can decide if a term is unfair.
The terms that set the upfront price payable under the contract
are not covered by the law.
If a Court or tribunal determines that a term is
"unfair", the term will be void – that is not
binding on the parties. The rest of the contract which is not found
to be "unfair" will still apply to the extent it is
capable of operating without the unfair term.
Some terms that can't be declared unfair include terms that
define the main subject matter of the contract, which set the
upfront price, or which are permitted under a law of the
Commonwealth or a state (e.g. a prescribed industry code).
If a contract is varied on or after 12 November 2016, the
protections will apply to the varied terms but not to the rest of
If a contract is automatically rolled over after 12 November
2016, the protections will apply from the renewal date.
If a contract is holding over say on a month to month basis or
on another periodic basis or moves from a set term to holding over,
the new protections apply from the first time a new period starts
on or after 12 November 2016.
The new provisions also apply to contracts with a Commonwealth,
state or territory body to the extent it is carrying on a business
but not a government body that engages in day to day procurement
activities which is not carrying on a business.
Where a contract is made up of multiple documents – e.g.
another document incorporated by reference, the other document will
form part of the contract for the purposes of the new law.
Where there is a breach, a number of options may be available
including having the ACCC or ASIC intervene (likely in only the
most significant cases), self enforcement, or to seek to involve
the applicable industry ombudsman and dispute resolution
Businesses who deal with small businesses will be well advised
to have their contracts reviewed well ahead of the new law
starting, and to cover contracts being signed now that might be
renewed under the new law.
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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