The recently passed Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) extends the unfair contracts protections in the Australian Consumer Law to small businesses. The amendments will apply to a standard form contract 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 (employs less than 20 people, including casual employees employed on a regular and systematic basis);
• the upfront price payable under the contract does not exceed $300,000 or $1 million if the contract is for more than 12 months.
A standard form contract is a contract that generally contains standardised, non-negotiable provisions and are usually in pre-printed forms. They are sometimes called “boilerplate contracts” or “take it or leave it contracts”.
If an existing standard form contract is varied on or after 12 November 2016, the law will apply to the varied terms.
A term of a contract is ‘unfair’ if it:
• would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.
In determining whether a term is unfair a court must take into account the extent to which the term is transparent and the contract as a whole.
The types of terms that could be found to be unfair include terms which:-
• have the effect of permitting, one party (but not another party) to avoid or limit performance of the contract
• have the effect of permitting, one party (but not another party) to terminate the contract
• have the effect of penalising, one party (but not another party) for a breach or termination of the contract
• have the effect of permitting, one party (but not another party) to vary the terms of the contract
• have the effect of permitting, one party (but not another party) to renew or not renew the contract
• have the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract.
If a court determines that a term of a contract is unfair, that term will be void although the contract will still be valid to the extent that it can operate without that term.
While most standard form contracts will be covered there are some exceptions including:-
• contracts entered into before 12 November 2016
• contracts for the carriage of goods by ship
• constitutions of companies and managed investment schemes
While the unfair contract term provisions will apply to all standard form contracts, the provisions may particularly have implications for the IT industry and the franchise industry where standard form contracts are widely used. Businesses which use standard form contracts should review those contracts to ensure that they meet the provisions of the Australian Consumer Law when they come into effect.
