Arm­ing David with a shield: unfair con­tract protections

In brief

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.

Which busi­ness­es?

Busi­ness­es with less than 20 employ­ees. This includes full timers, part timers, and casu­als employed on a ​“reg­u­lar and sys­tem­at­ic basis.“

Which con­tracts?

Con­tracts must sat­is­fy a num­ber of con­di­tions before the new laws apply: 

1. 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). 
   
2. Val­ue: Either:
   1. the upfront con­tract price is $300,000 or less; or
   2. the upfront con­tract price is $1,000,000 or less and the con­tract has a dura­tion of more than 12 months.
3. Prod­ucts: Either:
   1. the con­tract is for a finan­cial prod­uct or finan­cial services;
   2. the con­tract is for a sup­ply of goods or ser­vices; or
   3. the con­tract is for a sale or grant of an inter­est in land.
4. Date: Either:
   1. the con­tract was entered into on or after the com­mence­ment date (this date is still unknown at this stage);
   2. the con­tract was renewed on or after the com­mence­ment date; or
   3. the con­tract was var­ied on or after the commencement.

What is an unfair con­tract term?

Unfair con­tract terms are terms which:

1. would cause a sig­nifi­ant imbal­ance in the par­ties’ rights and oblig­a­tions aris­ing under the contract;
2. are not rea­son­ably nece­sary to pro­tect the legit­i­mate inter­ests of the advan­taged par­ty; and
3. 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:

1. declar­ing that a term is unfair;
2. declar­ing parts of a con­tract to be void;
3. vary­ing parts of a contract;
4. refus­ing to enforce parts of a contract;
5. direct­ing a par­ty to repair or refund a prod­uct pro­vid­ed under the con­tract; or
6. 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.