Get Ready – Unfair Consumer Contract Term Protections to Extend to Small Businesses

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 was introduced in the House of Representatives on 24 June 2015 and is scheduled to enter the Senate shortly. If passed, this Bill will extend the unfair contract term protections that are currently available to consumers to small businesses. We believe that the Bill is likely to pass in the immediate future, and that small businesses or those dealing with small businesses should inform themselves of the changes now.

When will the Bill apply?

The provisions will apply if:

• The contract is a standard form contract; and
• At the time the contract was entered into, at least one of the parties to the contract is a small business (fewer than 20 persons); and
• Either:
  –   The upfront price payable under the contract is $100,000 or less; or
  –   The upfront price payable under the contract is $250,000 and the contract has a duration of more than 12 months; and
• The contract terms are unfair.

What does unfair mean?

A term is unfair if:

• It would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
• It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Examples of unfair terms are those that permit, or have the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent, and terms that limit, or have the effect of limiting, a party’s right to sue another party.

Exceptions to the unfair contract term provisions are terms that:

• Define the main subject matter of the contract;
• Set the upfront price payable under the contract (the amount that is provided for the supply or sale under the contract); or
• Are required or expressly permitted by a law of the Commonwealth, a state or territory.

What happens if a term is unfair?

If a contract term is found to be unfair, it is deemed void as is treated as though the term never existed. This means that you will not be able to rely on it in Court.

What should I do now?

We recommend determining whether you are a small business or are a business dealing with a small business and whether the Bill applies to your situation, and looking through the Terms and Conditions of any relevant contracts to see whether any are unfair towards you or the business you deal with.

If you would like advice on your standard form contracts and whether any of your terms would be deemed unfair, please contact Peter North, Senior Associate, or Caroline James, Lawyer at Lewis Holdway Lawyers on 03 9629 9629.