Clifford Gouldson Lawyers

Small Business Receives Unfair Contract Terms Protection

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The Federal Government has recently passed legislation which will extend the existing unfair contract term provisions* (which currently protect consumers) to also provide protection to ‘small businesses’. 

The Treasury Legislation Amendment (Small Businesses and Unfair Contract Terms) Bill 2015 (the Bill) means that a Court can now declare an unfair term contained in a ‘standard form small business contract’ to be void, however the remaining terms contained in the contract will continue to bind the parties.

The reforms apply not only to new contracts that are entered into, but will also apply to renewals or variations to existing contracts.

What is an ‘unfair’ contract term?
A term of a contract may be considered unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations under the contract;
  • would cause a detriment (financial or otherwise) to one of the parties; and
  • is not reasonably necessary to protect the legitimate business interests of the party who would be advantaged by the inclusion of the term.
Examples of terms that may be ‘unfair’ are those that enable one party to unilaterally vary the terms contained in the contract or terminate the contract. 

What is a ‘Small Business Contract’?
To be a small business contract, one of the parties to the contract must employ fewer than 20 persons (not including casual employees, unless they are employed on a regular and systematic basis) and the value of the contract must not exceed either $100,000 or $250,000 if the contract is for more than one year’s duration. 
What is a ‘Standard Form Contract’?
A contract is likely to be identified as a standard form contract when:

  • one party has all or most of the bargaining power;
  • the other party is required to accept or reject the terms of the contract in the form they are presented by the other party (i.e. ‘take it or leave it’);
  • the contract has been prepared by one party prior to any discussion relating to the relevant transaction having occurred between the parties;
  • there has not been an effective opportunity by a party to negotiate the terms of the contract; and
  • the contract does not take into consideration the specific characteristics of another party or the particular transaction taking place between the parties.
Terms and Conditions, supply agreements and services agreements will be some of the contracts most likely to fall within this definition.

The changes are likely to take effect some time in 2016. If you require advice as to how the changes might affect your business documentation, please contact our Commercial + Property Team.

*See Australian Securities and Investments Commission Act 2001 (Cth) and the Competition and Consumer Act 2010 (Cth).

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