On 12 November, 2016 new legislation came into effect which aims
to protect small businesses from unfair terms in
business-to-business standard form contracts.
This new legislation extends the operation of the existing
unfair contracts provisions to include small businesses. The new
provisions allow the courts to strike out any terms in contracts
that are held to be unfair.
The legislation applies to standard form contracts as
contracts entered into or renewed on or after 12 November
where contracts are varied on or after 12 November 2016, the
law will apply to the varied terms; and,
contracts between businesses where one business employs less
than 20 people and the contract is worth up to $300,000 in a single
year or $1 million if the contract runs for more than one (1)
The effect of the new legislation is to protect business that
are in a weaker bargaining position and who often find themselves
in a 'take it or leave it' situation. Some examples of
unfair contract terms are set out in the legislation and they
terms that enable one party (but not another) to avoid or limit
their obligations under a contract;
terms that enable one party (but not another) to terminate a
terms that penalise one party (but not another) for breaching
or terminating a contract; and,
terms that enable one party (but not another) to vary the terms
of the contract.
Breach of these provisions could not only land you in Court as a
Defendant but you could also be on the receiving end of an ACCC
enquiry into your business practice. If a Court finds that a
particular term in a contract is unfair then that term will be held
to be void.
In a recent case the Federal Court of Australia declared that an
internet service provider's standard terms and conditions were
unfair. Those terms had the effect of:
enabling the service provider to unilaterally vary the price
under the existing contract without giving notice;
requiring the consumer to indemnify the service provider
without limitation; and,
enabling the service provider to unilaterally terminate the
contract without cause or reason.
A voided term in a Contract has the potential to substantially
alter the contractual relationship between parties as the rest of
the contract will continue to bind the parties to the extent it is
capable of operating without the unfair term. Some other orders
that can be enforced against an offending party are an award for
damages as well as an injunction in serious cases.
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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