The Federal Government recently passed legislation amending the Australian Consumer Law and the Australian Securities and Investment Commission Act so that it will extend protections to small businesses from unfair terms in standard form contracts with other parties as from 12 November 2016.
A standard form contract is one pre-prepared by one party to the contract and where the other party is given no real opportunity to negotiate its terms.
The protections will apply in favour of small businesses (i.e. one employing less than 20 people) where it is offered a standard form contract by another party for:
* the supply of goods and services
* the sale or granting of an interest in land (including a lease)
* the supply of financial products and services
In order to obtain the protections the upfront price payable under the contract must be no more than $300,000.00 or $1 million if the contract is for more than 12 months.
Under the protections any unfair term in a standard form contract will be void and therefore not be binding on the small business.
Examples of terms that may be unfair include:
* terms that enable only one party to avoid or limit their obligations under the contract
* terms that enable only one party to terminate the contract
* terms that penalise only one party for breaching or
terminating the contract
* terms that enable only one party to vary the terms of the contract
In order to determine whether a term is unfair an application would have to be made to an appropriate tribunal or court. However, just the threat of making such an application may resolve the dispute with the other party.
It is important to note that the unfair contract protections apply to small businesses whether they are the acquirer of goods and services etc. or the supplier. This means that if a small business offers a standard form contract to another small business that other business can claim the unfair contract terms protections.
All small businesses must now consider reviewing all standard form contracts with other parties due to commence, renew or be varied from 12 November 2016 to determine whether any of the terms are possibly unfair and need amendment so as to not to offend the new regime.