The Australian Consumer Law has been amended to extend the protection that consumers enjoy against unfair terms in standard form contracts to small businesses. This amendment has been introduced in recognition of the fact that small businesses, like consumers, are vulnerable to unfair terms.
The amendment applies to business-to-business standard form contracts (or terms within a standard contract) that are entered into or renewed on or after 12 November 2016 where:
• it is for the supply of goods or services or the sale or grant of an interest in land;
• at least one of the parties is a small business. A small business is a business that employs less than 20 people, including casuals if they work on a regular and systematic basis; and
• the upfront price payable under the contract does not exceed $300,000 or $1million for contracts which are for more than 12 months. Payments that cannot be calculated with certainty at the time the contract is entered into are unlikely to be included in the calculation of this figure.
When is a contract a ‘standard form contract’
A ‘standard form contract’ is not a defined term in the law but generally refers to a contract that has been prepared by one party to the contract and is offered to the other party on a ‘take-it-or-leave-it’-basis with little or no room for the other party to negotiate the terms. Typical examples of standard contracts are: business loan contracts and credit card contracts.
What is considered an ‘unfair’ term
A term in a standard contract will be considered ‘unfair’ if it:
• creates a significant imbalance between the contracting parties;
• is not reasonably necessary to protect the legitimate interest of the party that benefits from the term; and
• causes a detriment (financial or otherwise) to a party relying on the term (the small business).
All three elements must be satisfied for a term to be considered unfair. The determination of unfairness is a case-by-case assessment which may also include looking at the transparency of the term in question, i.e. was the term written in reasonably plain language. However, it is important to keep in mind that the courts will not just look at an individual term but take a holistic approach and look at the whole contract. Pre-contractual conduct may also be taken into consideration.
What happens if a standard form contract includes an unfair term
The consequence of a finding that a standard form contract includes an ‘unfair’ term is that the unfair term will be declared void i.e. treated as if it never existed. To the extent possible, the contract will continue without the unfair term.
What you should be doing
Whether you are a large corporation or a small business, now is the time to review the terms of your standard contracts and to seek to amend or remove any unfair terms.
For more information visit www.accc.gov.au/uct or http://asic.gov.au/about-asic/what-we-do/laws-we-administer/unfair-contract-terms-law/unfair-contract-term-protections-for-small-businesses/
Please contact us at McGuinnLegal if you would like further information on this or need specific advice on any of these issues.