Legislation passed in both houses of Parliament yesterday will extend the consumer unfair contract term protections in the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) to standard form small business contracts. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth) is awaiting Royal Assent.
While the legislation won't be in effect for at least 12 months, businesses that contract with small businesses should review their standard form agreements now to ensure they don't include unfair terms as defined in the ACL and ASIC Act.
What is a small business contract?
A contract is a small business contract if:
- The contract is:
- for the supply of goods/services or a sale/grant of an interest in land, under the ACL, or
- is a financial product or for the supply (or possible supply) of financial services under the ASIC Act.
- At the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons (excluding casual employees, unless they are employed on a regular and systematic basis).
- The upfront price payable under the contract (excluding interest) does not exceed $300,000 or $1,000,000 for contracts with a duration of more than 12 months.
Some standard form small business contracts may be exempt, if they are subject to prescribed laws offering equivalent protections.
When will the changes come into effect?
The operative provisions of the Bill will begin 12 months after Royal Assent and will apply to contracts entered into on or after this date.
The amendments may also apply to contracts entered into before the Assent date, if the contract is renewed or a term of the contract is varied after the amendments come into force.
What are the potential consequences?
Even where unfair terms of standard form small business contracts are void, the contract will continue to bind the parties if it is capable of operating without the unfair terms. An unfair term is not void if it defines the contract's main subject matter, sets the upfront price payable under the contract or is a term required, or expressly permitted, by a Commonwealth, state or territory law.
The small business, that is a party to the contract, or the relevant regulator may apply to the court for a declaration that a contract term is unfair. The ACL and ASIC Act do not permit a non-small business party to apply for this type of declaration (notwithstanding that an application could be made for an unfair term of a consumer contract), putting larger businesses that contract with small businesses particularly at risk.
We would like to acknowledge the contribution of Matthew Palmer to this article.
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.
