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06 Apr 2016
Insights
April 6, 2016 Cogent Lawyers

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (“The Act”) commences on 12 November 2016.

The Act modifies the Australian Consumer Law Act 2010 (“ACL”), and the Australian Securities and Investment Commission Act 2001 (“ASIC Act”). The effect of The Act is it provides a mechanism for challenging standard form business Unfair Contracts. A standard business contract is one where the small business is usually the consumer and in the course of obtaining goods or services is provided with a Standard Form contract, with set terms and conditions, which the small business must accept to obtain the goods or services. The small business is not given the opportunity to negotiate the terms. Usually standard form contracts involve but are not limited to the following:

  • credit,
  • hire of goods,
  • utilities,
  • motor trades,
  • housing and construction,
  • insurance,
  • independent contractors, (including consultants, and freelancers)
  • waste management,
  • advertising,
  • retail leases,
  • telecommunication such as mobile phone and internet,
  • professional and technical services,
  • online sales and services,
  • healthcare etc..

Small Business Unfair Contact terms are usually found in Standard form Contracts. These Standard Form Contracts may be challenged for Unfair Contract terms, some of the instances where terms can be regarded as unfair are where the term:

  • would cause a significant imbalance in the parties rights and obligations 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 (whether financial or otherwise) to a party if it were to be applied or relied on.

In determining whether a contract is a standard form contract, a court must take into account whether:

  • one of the parties has all or most of the bargaining power relating to the transaction,
  • the contract was prepared by one party prior to any discussion relating to the transaction occurred between the parties,
  • one of the parties was required to either accept or reject the terms of the contract in the form in which they were presented to that party,
  • one of the parties was given an effective opportunity to negotiate the terms of the contract,
  • the terms of the contract take into account specific characteristics, requirements of another party or the particular transaction, or any other matter prescribed by the regulations.

The  court will consider whether the term is transparent, expressed in plain language, is legible, clearly presented and readily available. However, these provisions are restricted to small business only. Small Business is defined as a business having fewer than 20 employees, and the contract sum must not exceed $300,000 or $1 million if the contract is for greater than 12 months.

The legislation uses a head count method in determining how many people are employed in a business. It does not refer to full-time equivalents or count casual employees unless they are employed on a regular basis.   (note this does not effect the way in which the ASIC Act defines small business (as one employing fewer than 100 people if it manufactures goods ,and otherwise fewer than 20 people).

Although the Act commences on 12 November 2016 and is not retrospective, it will catch existing unfair contracts that are renewed or varied after that date.

Some of the remedies available to the court to make are orders that:

  • the whole or any apart of the contract is void ab initio,
  • the contract be varied from a specified date,
  • refusing to enforce any or all provisions in the contract,
  • property be returned, or its value refunded,
  • a party pay a sum equal to the loss or damage,
  • that an item be repaired or parts for goods be supplied,
  • to reconvey or transfer an interest in land,
  • apportionment of liability between parties for economic loss or damage to property.

There is provision also for the ASIC to intervene on behalf of small businesses and challenge small business Unfair Contracts in Court.

We urge all clients to take notice of these changes and we would be pleased to assist you with adopting the fairness test to your standard form contracts and identify which clauses are at risk of being “unfair terms” and therefore unenforceable. We can also determine what changes you need to make to minimise the pitfalls most standard form contracts will have under The ACT and maximise enforceability to properly protect your interests.

Please note the above information is not intended to constitute legal advice, nor shall you construe it as legal advice, and it is based on information available at this time of writing. If you need legal advice with regards how The Act will effect your business please don’t hesitate to give us a call: (02) 8379 1227