Big change for small business- Do your standard form business
contracts contain unfair terms?
From 12 November 2016 the Australian Competition & Consumer
Commission (ACCC) will be scrutinising standard form contracts
involving small businesses (being a business employing less than 20
people as determined on a headcount basis). New legislation means
small business contracts must not contain unfair terms. If there is
an unfair term the ACCC will be able to declare the term as void,
which may impact the utility of other terms in the contract. It may
even cost the business its reputation or thousands of dollars by
way of compensation.
Surprisingly, the small business involved may be either the
supplier or the acquirer, and contracts between two small
businesses are included under the new laws.
Standard form contracts are contracts that are not negotiated
and occur in "take it or leave it" circumstances, and
would likely include the terms and conditions of a business.
Does this apply to my business?
To be affected by the new laws, the contract must satisfy all of
the following categories:
At least one party must be a "small business" (this
includes transactions between a large business and a small
business, two small businesses, or with a non profit
For contracts up to one year, the upfront price must be less
than $300,000, or less than $1 million if the contract lasts longer
than one year;
The contract must be in relation to the supply of goods and
services, financial transactions or services, or relating to
The contract must be a "standard form contract";
It must not be an excluded contract (this currently includes
but is not limited to contracts relating to marine and shipping
transactions, company constitutions, and small business contracts
that may already be covered by specified state or Commonwealth
It must be entered into, varied or renewed on or after 12
November 2016 (e.g. this will affect transactions entered into
under standard terms and conditions, or standard terms and
conditions that are varied or renewed, on or after that date).
Contract terms that may be considered to be unfair include when
only one party may have rights in relation to terminating or
varying the contract, or contracts where there is a significant
disparity in obligations required of the parties. Examples of
unfair contract terms include when a supplier is unilaterally able
to vary the amount charged for a service without providing the
acquirer an opportunity to terminate the contract, or even terms
containing automatic rollover periods (e.g. month to month).
How do I minimise the risk of my contract containing unfair
Businesses that believe they may be caught should take some of
the following steps to limit their exposure to potential
Insert mutual or balancing terms so that rights are afforded to
both parties rather than only one party;
Do not try to hide terms. Specify or draw attention to any
terms which may fall into the category of being unfair or one
sided, and ensure that they are justifiable;
Take steps to increase the transparency of payment and/or
cancellation procedures within contracts. This can include anything
from improving the layout, spacing, font size and colour of the
terms, to the actual wording of clauses (avoid being wordy and
Allow negotiation and agree to changes of the terms of a
standard form contract before it is entered into; and
Include provisions for opting out and/or dispute resolution as
these are simple ways to ensure that terms of standard form
contracts will not be considered as unfair. Penalties/Effects
The risk is that businesses may have certain terms of contracts
declared void by the courts, which will potentially impact how
other aspects of the contract will continue to operate. This can
cause considerable damage to businesses' reputation,
relationships and revenue if a number of your standard form
contracts are affected at once, which will usually be the case.
Additionally, ASIC and ACCC may choose to publish the details of
your matter on their website or require you to give an undertaking
to prevent future unfair conduct. If required, these bodies may
also award compensation orders to aggrieved parties at their
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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