Unfair Contract Terms Extended to Small Business

November, 2015

By Brent Weston, Special Counsel and Natasha Wilson, Lawyer

Overview

The Australian Consumer Law already provides that an unfair contract term in a standard form consumer contract is void.  In October 2015, legislation was passed which extends unfair contract term protections to businesses with less than 20 employees, who agree to standard form contracts valued at less than $1 million if the contract is longer than 1 year.

Implications for you 

There is a 12 month transition period before the new law takes effect in October 2016. During this period, you should:

What is a standard form contract?

Contracts like software end user licence agreements, retail leases, waste management agreements and franchise agreements are likely to be caught, but other contracts may also fall under the new law if:

If the customer is able to freely negotiate and amend the contract, it may not be caught by the new law, but merely negotiating price or the goods/services being supplied probably won’t be enough.

What is a small business contract?

A contract is a small business contract if at the time it was entered into:

What is an unfair term? 

A term is unfair if:

Terms that are unfair can be declared void, although the contract will continue to bind the parties to the extent that it is capable of operating without the unfair term.

Examples 

The following terms may be deemed unfair:

Exclusions 

A small business contract will not be covered by the new law if it is already subject to industry-specific laws that have been deemed enforceable and equivalent.

Company constitutions and contracts for management investment schemes are exempt.

The new law won’t apply to terms that:

Terms may not be unfair if they are clearly drawn to the other party’s attention prior to the agreement.

Mills Oakley can assist 

The changes will apply to small business standard contracts entered into after the 12 month transition period has ended in October 2016, or contracts renewed or terms varied after that date.

We strongly recommend that you start your review as early as possible to allow sufficient time for your standard form contracts to be updated, printed and fully understood by contract managers.

Mills Oakley can assist with your review.

Mills Oakley Lawyers is a leading Australian law firm. Our Corporate Advisory group can assist with reviewing contracts for companies that may be affected by the new unfair contract terms.

Contact Mills Oakley

warren-scott

Warren Scott | Partner 
T: +61 3 9605 0984
E: wscott@millsoakley.com.au

 

tim-cox

Tim Cox | Partner 
T: +61 7 3228 0422
E: tcox@millsoakley.com.au 

 

 


1 Competition and Consumer Act 2010 – Australian Consumer Law

2 Australian Securities and Investments Commission Act 2001 

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