The unfair contract terms regime in the Australian Consumer Law
(ACL) and the Australian Securities and
Investments Commission Act 2001 (Cth) (ASIC
Act) has been extended to apply to small business
contracts. Clients dealing with small businesses using standard
form contracts should be conscious of these changes.
Background and Application
Under the existing unfair contracts provisions in the ACL and
ASIC Act, a court can declare an unfair term of a standard form
consumer contract to be void. Now amended by the Treasury
Legislation Amendment (Small Business and Unfair Contract Terms)
Act 2015 (Cth) (Amendment Act), terms of
small business contracts entered, varied or renewed on or after 12
November 2016 are subject to the unfair contracts provisions.
The unfair contract terms regime under the ACL applies to
contracts for the supply of goods or services or the sale or grant
of an interest in land, while the ASIC Act applies to financial
products and contracts for the supply, or possible supply, of
financial services. The provisions do not apply to shipping
contracts, constitutions of companies, managed investment schemes
or other bodies, or small business contracts subject to prescribed
Commonwealth, State or Territory laws. To date, no such laws have
A term of a contract falls is void under s 23 of the ACL or
s 12BF of the ASIC Act if it meets three conditions:
(a) the contract is a small business contract; (b) the
term is unfair; and (c) the contract is a standard form
Small Business Contracts. "Small business
contract" is broadly defined as a contract where at least one
of the parties is a business employing less than 20 people and the
upfront price payable under the contract does not exceed $300,000
(or $1 million for contracts with a term of more than 12
months). A party's number of employees is determined using a
headcount approach and does not take into account hours or
workload. Casual employees are only included in the count if they
are employed on a regular and systematic basis. The definition of
"small business contract" does not take into account the
number of employees of a party's related bodies corporate. As
such, small subsidiaries of large companies can rely on the unfair
contract terms provisions.
Unfair. A term is unfair if it:
would cause a significant imbalance in the parties' rights
and obligations arising under the contract;
is not reasonably necessary to protect the legitimate interests
of the benefited party; and
would cause detriment (financial or otherwise) to a party if it
were to be applied or relied on.
During a transition period under the amendment, the Australian
Competition and Consumer Commission conducted a review of 46
standard form contracts across seven industries, and identified
terms likely to raise concerns under the new law. The report
summarizing the results of this review, Unfair terms in small
business contracts: A review of selected industries, noted
that the three most commonly-occurring unfair terms were those that
allowed the contract provider: (a) to unilaterally vary all
terms (or at least those that have a significant bearing on the
contractual arrangement, or which could cause detriment if varied)
in an unconstrained manner; (b) potentially broad and
unreasonable powers to protect themselves against loss or damage at
the expense of the small business by imposing broad indemnities or
excessive limitations of liabilities; or (c) an unreasonable
ability to cancel or end an agreement as it suits them.
Standard form contracts. If a party alleges
that a contract is standard form, it will be presumed be standard
form unless another party proves otherwise. Generally, a standard
form contract is pre-prepared by one party and provided to the
other party with no effective opportunity to negotiate.
Remedies. An unfair term of a standard form
small business contract is void, but the contract continues to bind
the parties if it is capable of operating without the unfair term.
The court may also award compensation for loss or damage suffered
by the small business as a result of the contract provider's
reliance on that term.
Clients should be wary of the extended unfair contract terms
regime when doing business with parties that may have less than 20
employees, including subsidiaries of large corporations. Any
standard form contracts should be checked for draconian terms that
fall foul of the unfair contracts provisions. Terms that permit
unilateral variation or termination of the contract, or provide
unreasonably broad indemnities or limitations of liability are
likely to be void under the new law.
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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European competition authorities are also serious about resale price maintenance or suppliers fixing resellers’ prices.
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