ASIC has recently released an Information Sheet which provides
guidance on new laws that extend unfair contract term protections
to small businesses entering into standard form contracts.
These new laws amend the Australian Consumer Law (ACL) and the
Australian Securities and Investment Commission Act 2001
(Cth) (ASIC Act) and will be enforced from 12 November 2016.
A term in a standard form contract will be unfair if it:
causes a significant imbalance in the parties' rights and
obligations under the contract;
would cause detriment (whether financial or otherwise) 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.
For more information on the definition of "small
businesses" and a discussion on what constitutes a
"standard form contract" please see our previous articles
The ASIC Information Sheet provides guidance on how the new laws
will impact businesses and outlines ASIC's expectations that
businesses will review their standard form contracts prior to 12
What should you do to ensure compliance with the new laws?
ASIC has recommended that businesses should begin a
comprehensive review of their standard form contracts, particularly
those that are used when contracting with small businesses of less
than 20 employees, and identify terms that would potentially breach
the new laws.
This process of review should include examining new contracts
and also existing contracts which businesses intend to vary or
renew as these will also fall within the ambit of the new
ASIC has provided specific examples of contract terms that may
be considered unfair under the new laws, these include terms which
provide for an automatic rollover of a contract or the right to
unilaterally vary a contract may be unfair under the new laws.
Businesses should consider these terms and whether they are
required in every instance.
According to ASIC, a term is considered to be
"transparent" if it is legible, expressed in plain
language, is presented clearly and is readily available to any
party affected by the term.
Businesses should ensure that all contract terms are
transparent. In addition, businesses should consider bringing
potentially unfair terms in standard form contracts to the
attention of the other side. While ASIC has identified that
transparency may not prevent such terms from being considered
unfair, if a business has provided the other party with notice or
other information about any onerous terms, there is less scope for
finding those terms to be unfair as the other party may be treated
as having assumed any risks associated with the term.
There is no requirement under the new laws to notify the other
side that your business is likely to be considered a "small
business" and fall within the protections of the new laws.
Accordingly, we recommend that businesses actively engage in
early stage enquiry to investigate whether the other contracting
party has less than 20 employees and would, therefore, be
considered a small business under the new laws. Businesses may also
consider creating a separate set of contracts for big businesses
and small businesses.
This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a substitute
for legal or other advice that may be relevant to the reader's
specific circumstances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your circumstances please contact one of the named
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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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