The Federal Government has enacted legislation extending the unfair contract term protections of the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) to the small business sector.
Under the new laws, a Court is able to declare that a term of a standard form small business contract is void if the term is unfair.
The laws are an extension of existing provisions which have been available to consumers since 1 July 2010.
The intent of the legislation is to level the playing field and prevent “take it or leave it” standard form contracts, which are commonly one-sided, from including unfair terms. The amendments are based on the assumption that small businesses, like consumers, often lack the resources or skills to understand and negotiate contract terms and are vulnerable to the inclusion of unfair terms.
Agreements which could be caught by the provisions include retail leases, supply agreements, franchise agreements and finance contracts.
In this article, we look at what the new regime means for your business.
What transactions are captured by the new regime?
The amendments which apply to standard form contracts entered into or renewed on or after 12 November 2016, extend the unfair contract term protection laws to contracts that are defined as a “small business contract”. A small business contract is one where:
The protections only apply to standard form contracts. Although there is no express definition of a standard form contract, a standard form contract generally includes situations where:
A contract will be presumed to be a standard form contract unless a party proves otherwise.
What is an unfair contract term?
A term of a contract is unfair if it:
Enforcement of the new provisions
If a party considers that a term of a small business contract is unfair, it can apply to the Federal Court seeking a declaration that the term is void and unenforceable. The remainder of the contract will bind the parties if it is capable of operating without the unfair term. Once a term is declared unfair, the party could also seek an injunction preventing the other party from relying on the unfair term.
There are no specific penalties or offences associated with a contract term being held to be “unfair”. Applications to the Court can be made by a small business, the ACCC or by State regulators. The ACCC has been provided with $1.4 million in funding to assist in the implementation of and compliance with the new legislation.
What can your business do going forward?
The new laws apply to contracts entered into or varied from 12 November 2016, which means that any business that uses a standard form contract when dealing with a small business will have to comply with the new regime.
Companies which deal with small businesses should review their standard terms of trade to ensure that they do not include unfair terms. This might include:
The new legislation affects a large number of industries which rely on standard form contracts. Businesses should review their standard form contracts immediately to minimise the risk of key contractual terms being found unenforceable.
If you or someone you know wants more information or needs help or advice, please contact us.