Since 2010, the Australian Consumer Law (ACL) has provided protection to consumers against unfair contract terms that may be imposed through standard form contracts. On 12 November 2016 the unfair contract provisions in the ACL were extended to cover terms of standard form contracts with small businesses.
When do the unfair contract provisions apply?
The provisions apply when supplying goods and/or services to a business where:
- the business is employing less than 20 people, and
- the upfront price payable under the contract is less than $300,000, or $1 million if the contract is over 12 months.
What is an unfair contract term?
The ACCC’s guidelines on unfair contracts terms include but are not limited to:
- Terms which only allow one party to avoid or limit their obligations under the contract
- Terms which only allow one party to terminate the contract (unilateral termination provisions)
- Terms which only penalise one party for breaching or terminating the contract
- Terms that enable only one party to vary the terms of the contract.
However, only a court or tribunal can determine whether a term is unfair.
What are the changes to the ACL and who does it affect?
The provisions of the ACL were extended to cover small business contracts and standard form contracts. A standard form contract is one which is prepared by one party and presented to the other for acceptance with little or no opportunity for negotiation.
It is usually offered on a ‘take it or leave it’ basis and where one party has majority of the bargaining power.
Who does it affect?
The changes amended the Australian Securities and Investments Commission Act 2001 (Cth) and the Australian Consumer Law under the Competition and Consumer Act 2010 (Cth) to apply to all small business contracts (as described above).
This will allow an opportunity for small businesses to negotiate unfair terms under a contract, and the court will be empowered to remove the term without voiding the whole contract. An application for this could be submitted by either party of the contract or ASIC. This means that crucial or important terms may be removed if they are not drafter properly or does not allow the other party to have a reasonable opportunity to negotiate.
It is paramount that businesses ensure their contract terms in standard from contracts are up to date with relevant legislation and complied with. If you have any questions in relation to the unfair contract regime, contact Michael Morrissey or Hamish Geddes.
Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.