UNFAIR TERMS IN STANDARD FORM, SMALL BUSINESS CONTRACTS

UNFAIR TERMS IN STANDARD FORM, SMALL BUSINESS CONTRACTS

The new changes:

cThe Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth) (Amendment Bill) will amend the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL) to provide that unfair terms in standard form, small business contracts are void and unenforceable.
The amendments signify a recognition of the likely imbalance in resources and negotiating power between small businesses and other contractual parties.

What contracts will be affected?
The new protections will affect standard form, small business contracts entered into, amended or renewed on or after 12 November 2016. An agreement will be a small business contract if, at the time it is entered into at least one party to the agreement is a business that employs fewer than 20 persons and the upfront price under the agreement does not exceed the prescribed legislative thresholds.

What terms will be unfair?
The new unfair contract term protections will reference existing concepts of what is ‘unfair’ as outlined in the ASIC Act and the ACL. Accordingly, a term will be deemed unfair where it would cause a significant imbalance in the parties’ rights and obligations arising under the contract, it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term and it would cause detriment to a party if it were to be applied or relied on. The legislation will provide a number of examples of terms that may be unfair, including terms which permit one party to unilaterally determine when the contract has been breached, terms which penalise one party (but not another party) for breach of the contract and terms which permit one party to assign the contract without the other party’s consent.

The importance of transparency
A lack of transparency may be a strong indication of a significant imbalance in the rights and obligations of the parties under a contract. A term will be ‘transparent’ if it is expressed in reasonably plain language, legible, presented clearly and readily available to all parties involved.

Practical implications
In order to ascertain whether a particular contractual term will be subject to unfair contract term protections, the nature of the parties to a contract, as well as the contract itself, should be carefully considered. If the protections apply, it will be necessary to ensure that the contractual terms do not create an imbalance between the parties, are reasonably necessary to protect the interests of the party advantaged or would not cause detriment to any party if relied upon. Further, parties to a standard form small business contract should ensure that the terms of the agreement are set out in a transparent manner.

If you would like to discuss any aspect of the matter, please contact us.

Kim Valenti
(08) 9224 6222
kim.valenti@valentilawyers.com.au

This Alert provides a summary of the subject matter covered. It does not render any legal advice. You should first obtain professional legal advice prior to taking any action on the basis of any information contained in this Alert.
This article is copyright. For permission to reproduce this article please email Kim Valenti:
kim.valenti@valentilawyers.com.au
Liability limited by a scheme approved under Professional Standards Legislation.