Arming David with a shield: unfair contract protections
Small businesses are consumers in their own right. So why shouldn’t they be protected from unfair contracts in the same way that consumers are? Now, new legislation ensures that David won’t face Goliath without a shield.
Our modern consumer protection laws ensure that consumers are protected from unfair contract terms. Those laws arose from a Productivity Commission report in 2008. At that time, the Productivity Commission also recognised that small businesses face many of the same issues as consumers – for instance, unequal bargaining power and lack of resources for negotiating. It recommended that unfair contract protections should apply similarly to consumers and small businesses.
Until recently, that recommendation was not acted upon. But on 20 October 2015 the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 finally passed both houses of Parliament. Here’s our wrap of the new provisions, which will likely commence sometime in the New Year.
Businesses with less than 20 employees. This includes full timers, part timers, and casuals employed on a “regular and systematic basis.“
Contracts must satisfy a number of conditions before the new laws apply:
- Form: The contract must be a standard form contract (the idea is that small business are often presented with standard form contracts on a ‘take it or leave it’ basis).
- Value: Either:
- the upfront contract price is $300,000 or less; or
- the upfront contract price is $1,000,000 or less and the contract has a duration of more than 12 months.
- Products: Either:
- the contract is for a financial product or financial services;
- the contract is for a supply of goods or services; or
- the contract is for a sale or grant of an interest in land.
- Date: Either:
- the contract was entered into on or after the commencement date (this date is still unknown at this stage);
- the contract was renewed on or after the commencement date; or
- the contract was varied on or after the commencement.
What is an unfair contract term?
Unfair contract terms are terms which:
- would cause a signifiant imbalance in the parties’ rights and obligations arising under the contract;
- are not reasonably necesary to protect the legitimate interests of the advantaged party; and
- would cause detriment to a party.
The ‘transparency’ of the term is a key issue. A useful touchstone is to ask yourself ‘how easy is it to understand this term?‘
What happens to unfair contract terms?
A party to the contract can commence proceedings in court. The ACCC, ASIC and fair trading authorities can also commence proceedings. The court has a variety of powers, including:
- declaring that a term is unfair;
- declaring parts of a contract to be void;
- varying parts of a contract;
- refusing to enforce parts of a contract;
- directing a party to repair or refund a product provided under the contract; or
- varying or terminating interest in land created by the contract.
What does this mean for me?
If you operate a small business, it is important to be mindful of these provisions when negotiating contracts. If you have entered a contract which you think may contain an unfair contract term, seek legal advice.