From 12 November 2016 the unfair contracts provisions of the consumer law will be extended to cover standard form contracts involving small businesses. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 recognises the disparity in bargaining power between small businesses and their larger cousins and extends to them the protections currently given to consumers against unfair terms under the ASIC Act and the Competition and Consumer Act.

Which contracts does the Act apply to?

Small Business (<20 staff) +
Standard Form Contract +
Contract Price < $300K or < $1M for 1+years duration

A small business presented with a standard form contract on a “take it or leave it” basis after 12 November 2016 can apply to a court for relief against terms in that contract which are unfair. ASIC and the ACCC can also investigate terms of standard form contracts and seek similar orders from a court preventing unfair terms that they have identified from being included in or enforced under those contracts.

What is an unfair term?

An unfair term is any term that:

• significantly imbalances the parties’ rights and obligations under the contract;
• is not reasonably necessary to protect the legitimate interests of the advantaged party; and,
• would cause detriment to a party if applied or relied on.

What should you do?

Small Businesses: make the most of the new provisions for any contracts you enter after 12 November 2016, either to negotiate for more favourable terms in the shadow of the legislation or to challenge the application of an unfair term in a later dispute.

Bigger Businesses: review your standard form contracts for any unfair terms, and amend them accordingly. You should also review your process of contract negotiation to ensure that, where potentially unfair terms are included in your contracts, they are subject to negotiation and explanation and not presented on a “take it or leave it” basis.

Independent Contractors and Sole Traders: as the smallest of all businesses you will be able to seek protection from unfair terms, and should utilise those protections in the same manner as Small Businesses.

Get in touch

Whether you are a Small Business, a Bigger Business, or an Independent Contractor, CML Lawyers would be delighted to assist you in reviewing your existing agreements and negotiating your new agreements in light of the impending extension of the Unfair Contract Term provisions.

Peter McNamara
Partner at CML Lawyers