As a small business you will encounter many standard form contracts that leave you with limited room to negotiate so that the final and signed version of the contract could contain unfair terms. In the past small businesses were expected to put up with these unfair terms or find another provider (if one was available). This scenario no doubt lead to frustration for many small business owners especially when the term operated harshly and left the business owner with few or no options. The situation was certainly ripe for reform and thankfully a new law, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 which will among other amend the existing Part 2-3 of the Competition and Consumer Act 2010 (the,“CCA”), and will apply to standard form contracts from 12 November 2016 to provide small business owners with some degree of comfort.

Essentially the new law will extend existing unfair contract protections to small business and apply to standard form type contracts [see: section 27 of the CCA] regarding goods and services where the “small business” (employing less than 20 people) is a party and the upfront price of the contract is not more than $300,000 (or if the contract is for more than 12 months $1 million). No doubt interesting questions will arise about whether a price, for instance under a building contract requiring payments over time (or at specific points in time), could be considered as an “upfront price”. Some contracts are specifically excluded from the operation of this law such as insurance contracts. Conceptually the idea behind legislation is to protect small businesses against unfair terms where they do one or all of the following: –

  • brings about a significant imbalance in the party’s rights and obligations;
  • the term isn’t necessary to protect that party’s [legitimate] business interests; and
  • the term would cause harm in the event the other party relied upon it.

Whilst there could be a great number of different scenarios in which such unfair terms may be found some of the common examples would be cases where only one party can end the contract (or get out of their obligations) or where only one party is punished when the contract is breached. A common theme in these scenarios is that they are basically a one-sided arrangement. A court will, naturally when called upon to determine these questions, look at the contract as a whole and the extent to which such a term is transparent. Some terms are specifically excluded from the operation of the legislation including for instance terms that state the upfront price payable.

An unintended consequence of the amendment, and I say this tongue in cheek, is that Schedule 2 to the CCA which is entitled “Australian Consumer Law” (ACL) now needs renaming to the "Australian Consumer and Small Business Law" (ACSBL). Humour aside, if, after the commencement of this legislation, you find yourself in a position where a standard contract is unfair then seek legal advice. If your solicitor forms the view that the standard form contract contains an unfair term and you have the benefit of the legislation then you may be advised to seek a declaration from the court (or tribunal) that the term is unfair and is as such “void” [see: s 23 CCA]. Additional relief could include consequential orders seeking an injunction to restrain the other party from relying upon the unfair term. In most cases the first step could be to write to the other side telling them that you consider the term to be unfair, asking they agree that the term is effectively to be “removed” from contract and that no reliance is to be placed upon it and failing that the Court would be approached to deal with and determine the issue.

Additional resources and information can be found on:- the Fair Trading Website; the ACCC Website; a blog by the Australian Small Business Commissioner called "Protect your small business from unfair contract terms"

* This content does not purport to give legal advice. Readers must obtain their own legal advice, that applies to the particular circumstances of their case, before taking any action at all.

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