Are you a small business or have dealing with small businesses?
Do you have or are you engaged under a standard form contract? Are
you prepared for the new regime?
The extension seek to address the lack of bargaining power and
vulnerability often faced by small businesses in contractual
negotiations, where the more powerful contractor seeks to engage
small businesses generally on a 'take it or leave it'
Next month the protections currently provided to consumers under
the Competition and Consumer Act 2010 (Cth) (the
Act) will be extended to protect small businesses
contracting under a standard form contract.
The new law will apply to:
standard form small business contracts that are entered into or
renewed on or after 12 November 2016; and
the varied terms of any pre-existing standard form small
business contracts that are varied on or after 12 November
A contract will fall under the new regime if the contract
complies with the new definition of 'small business
contract' and is a standard form contract.
A contract is a small business contract if:
the contract is for a supply of goods or services, or a sale or
grant of an interest in land; and
at least one party to the contract is a business that employs
fewer than 20 persons; and
the upfront price payable does not exceed $300,000 (or
$1,000,000 if the contract runs for more than 12 months).
A 'standard form contract' is generally prepared and
printed by one party and the other party usually cannot negotiate
A term may be unfair if:
creates a significant imbalance in the parties' rights and
obligations arising under the contract; and
isn't necessary to protect the legitimate interests of the
party it benifits; and
it would cause detriment (whether financial or otherwise) to a
party if it were to be applied or relied on.
Even if all three of the above criteria are met, the court may
take into account other matters and will consider the transparency
of the term and the contract as a whole.
The ACCC and ASIC have identified 8 of the most common examples
of terms that are challenged as 'unfair'; they include:
Right to unilaterally vary the contract;
Early termination fees;
Limited/ no liability;
Right to terminate agreement with no cause;
Wide indemnities; and
If a term is declared 'unfair' by the court, it will be
void and treated as if it had never been part of the contract.
This does not automatically void the contract.
Where possible, the court will seek to continue to bind the
parties under the contract, with the exception of the unfair
If you are a small business:
seek legal advice about any pre-existing contracts you think
may contain unfair terms;
seek legal advice about any potential contracts that have been
offered to your business; and
seek a legal review and advice about your businesses contracts
to ensure that meet the new statutory regime.
If you are a large business:
conduct a full legal review of your contract suite;
seek legal advice regarding any current contract severance
seek legal advice regarding any pre-existing contract you think
may meet the criteria for a 'small business contract';
identify your small business clients.
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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