Unfair Contract Terms and Small Businesses
On 12 November 2016 the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) (“the Act”) came into effect amending both the Australian Consumer Law and the Australian Securities and Investment Commission Act 2001 (Cth).
The Act seeks to protect small businesses from unfair terms in standard form contracts entered into on, or after, 12 November 2016 by reducing the incentive to include and enforce unfair terms in small business contracts.
A term of a small business contract is unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Examples provided by Parliament of unfair terms include those that permit only one party to unilaterally vary terms, limit their obligations, terminate or renew the contract, levy excessive fees or usurious interest rates on outstanding monies, or affect the availability of redress.
An unfair term will be deemed to be void if the following criteria are satisfied:
- the contract is a standard form contract;
- the contract is for the supply of goods, services, land, financial products or financial services;
- the contract is entered, renewed or varied after 12 November 2016;
- one of the parties is a small business. This is defined as a business employing fewer than 20 people, including casual staff; and
- the upfront price payable under the contract does not exceed $300,000, or $1 million if the contract is for more than 12 months.
As a result of the new changes, small businesses or anyone contracting with a small business should review and amend all their standard form contracts to ensure that they are compliant with the new protections. Furthermore, small businesses should seek legal advice on any new contracts which they suspect contains unfair terms.
If you require any further information or advice in relation how your business might be affected by the new changes, please contact our experienced team at Quinn Lawyers Pty Ltd on (02) 9223 9166 or submit an online enquiry form today.