Implementation of small business protections under the
unfair contract provisions of the Australian Consumer Law (ACL) and
the Australian Securities and Investments Commission Act (ASIC Act)
began on 12 November 2016
It has been almost a year since the Federal Government passed
legislation amending the ACL and the ASIC Act extending the unfair
contract terms to small businesses. But as they say, a year is a
long time in politics, and this item may have since slipped off
your company's agenda.
So, if you are:
A small business that regularly signs standard form contracts
(contracts where you are not allowed or there is minimal
opportunity) to negotiate terms; or
A small business that relies on offering standard form
contracts as part of operating your business
your rights and obligations may change for standard form
contracts entered into on 12 November 2016 onwards.
Does this apply to my business?
A small business
Small businesses are businesses that employ less than 20 people
(casuals are only included if they are employed on a regular or
systematic basis). Importantly, this includes independent
Standard form, small business
Contracts to which the legislation apply must be a standard form
contract – that is, a contract usually prepared by one party
and where the other party has little or no opportunity to seek
amendments, often on a "take it or leave it" basis. It is
also only applicable if:
the upfront price payable under the contract does not exceed
the contract has a duration of more than 12 months and the
upfront price payable under the contract does not exceed
What does "unfair" mean?
Unfortunately, this is discretionary. However, courts will look
at things such as whether the term would cause significant
imbalances in the parties' rights, whether the term is
reasonably necessary to protect interests of the protected party,
the detriment caused to the other party if the term was relied
upon, the transparency of the term and the contract as a whole.
The ACL gives further examples of factors that courts will take
into consideration. However, each case will turn on its own facts
and on the specific contractual scenario.
This recent Federal Circuit Court case found that a term of
a cruise ship contract that disentitled passengers to any
compensation or refund in circumstances of an unexpected event or
prevailing inclement weather was held to be unfair.
In this case the Federal Court found that the following
a term which required a hirer to pay Europcar up to the amount
of the Damage Liability Fee (of $3,650) irrespective of fault;
a term which removed the limitation of liability inherent in
the Damage Liability Fee if the hirer breached the rental
agreement, regardless of the triviality of the breach or the link
between the breach and the relevant loss or damage,
were unfair and therefore void.
Time to check your terms
If a dispute occurs and you are relying on a standard form
contract, an unfair clause may be declared void.
Depending on how your terms are drafted, an unfair clause may
make the whole contract unenforceable.
It follows, that if your business relies on standard form
contracts and regularly contracts with individuals or small
businesses, you should seek advice on whether your standard form
contracts require amendment to try to ensure compliance with the
new unfair contract terms regime.
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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A provision in a contract, that seeks to impose a penalty on a contracting party in breach, is not enforceable.
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