A new law protecting small businesses from unfair contracts will come into effect on 12 November 2016.[1]
This law will likely apply to anyone who is providing a good or service under a contract where at least one of the parties is a small business (less than 20 employees – including casuals – employed on a regular/systematic basis).
What are Unfair Contract Terms?
Unfair contract terms are terms of a contract in a standard form contract (contracts offered by businesses on a non-negotiable, ‘take it or leave it’ basis) which:
- Create a significant imbalance between rights and obligations of the parties; and
- Is not reasonably necessary to protect the legitimate interests of the party it favours; and
- Would cause detriment (financial or otherwise) to a party if it was relied on.[2]
Examples of Unfair Contract Terms
A contract term may be unfair if it:
- Allows one party (but not another) to avoid or limit their obligations under the contract
- Allows one party (but not another) to change the terms of the contract
- Allows one party (but not another) to terminate the contract
- Penalises one party (but not the other) for breaching the contract[3]
Note: These are common examples, but only a court or tribunal will be able to determine whether any particular term is an Unfair Contract Term.
Exclusions
The new law will not apply to:
- Contracts entered into before 12 November 2016 (unless the Contract was renewed/varied on or after this date)
- Contracts with an upfront price payable of more than $300,000 or, if the contract is for more than 12 months, more than $1 million
- Shipping contracts
- Constitutions of companies, managed investment schemes or other kinds of bodies
- Certain insurance contracts (e.g. car insurance)
- Contracts in sectors exempted by the Minister – no sectors are currently exempt
What Can Rosendorff Lawyers Do For You?
Rosendorff Lawyers provides businesses with a comprehensive review of their standard form contracts to ensure compliance with the new law. Our experienced small business lawyers can also provide you with concise and accurate advice if you believe that you have entered into a contract containing an Unfair Contract Term.
The content of this update is intended only to provide a summary and general overview of the matters it addresses. It is not intended to be comprehensive nor does it constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.
This update is not intended to create nor does it create a solicitor-client relationship between you and Rosendorff Lawyers. If you would like any further information about these or any other matters, please contact us at 03 8320 2955 or at info@rosendorff.com.au today to arrange a free initial consultation!
[1] Australian Competition and Consumer Commission, ‘Unfair Contract Terms’, accessed 20 September 2016 <https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms>.
[2] s 24, Sch 2 Competition and Consumer Act 2010 (Cth).
[3] Examples adapted from ACCC website <https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms>.
