Unfair contract terms now protect small business
Are you a small business, or do you contract with small business, in the building and construction industry?
Contracts with small businesses entered into, extended or varied after 12 November 2016 are now subject to the unfair contract protections contained in the Australian Consumer Law, which were previously only available to protect individual consumers.
The extension of this protection to small business contracts means that many players in the building and construction industry should be conducting a review of their standard form contracts to ensure compliance with these new laws.
What is a Small Business Contract?
A small business contract is a contract:
- for the supply of goods or services, or a sale or grant of an interest in land; and
- at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 people (including casual employees employed on a regular and systematic basis); and
- the upfront price payable under the contract:
- does not exceed $300,000; or
- if the contract has a duration of more than 12 months, the upfront price payable under the contract does not exceed $1,000,000.
Which Small Business Contracts are Covered?
The unfair contract provisions only extend to standard form small business contracts. These contracts are generally offered on a ‘take it or leave it’ basis with no scope for negotiation of terms with one of the parties effectively holding all of the bargaining power.
Standard form contracts are common in the building and construction industry and are commonly created by terms and conditions printed on the back of, or provided with, a quote, purchase order or delivery docket.
Contracts produced by industry associations such as the QBCC, Master Builders and HIA are likely to fall within the definition of a ‘standard form’ contract.
What is an Unfair Term?
According to the legislation, a term of a small business contract is unfair if:
“(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.”
Examples of unfair terms might include a term that permits one party to unilaterally vary the terms of the contract, unilaterally terminate the contract or clauses which seek to limit one party’s liability whilst forcing the other to provide a wide indemnity.
It should be noted that the unfair term provisions cannot be applied to terms that define the main subject matter of the contract, set the upfront price payable under the contract or to terms that are required to be included in a contract by law (for example, the statutory warranties provided by the QBCC Act).
What to do?
Standard form contracts are commonly used in the building and construction industry. They are an efficient and cost effective method of forming contracts and this does not need to change.
However, if you do present your customers or clients with standard form contracts you should conduct a review to ensure that they do not include terms which could put you in breach of these new provisions.
Likewise, if you are a small business and have entered into a contract which does contain unfair terms you are now able to have the benefit of these protections.
Clifford Gouldson has a dedicated Construction law practice which deals with these issues every day. Contact us for advice that will save you money and heartache.