On 12 November 2016 new laws will commence making ‘unfair terms’ in ‘standard form small business contracts’ unenforceable.
The laws will have a broad application and are expected to apply to as many as 95% of Australian small businesses and, by extension, any organisations that deal with those small businesses.
If your business has not considered the new laws you might find that important conditions in your business contracts may be unenforceable leaving you out of pocket.
WILL THE NEW LAWS APPLY TO YOU?
If any of your business contracts tick the following boxes then it is likely the laws will apply to those contracts and you must ensure that the terms are ‘fair’:
ONE OR MORE PARTIES IS A ‘SMALL BUSINESS’
A ‘small business’ employs less than 20 people including casual employees employed on a regular and systematic basis at time of a contract. Employees of related entities are not taken into account.
ON OR AFTER 12 NOVEMBER 2016
The contract is entered into, varied (to the extent of the variations) or renewed.
'STANDARD FORM CONTRACT'
The contract was prepared by one party to the contract and is offered on a 'take it or leave it; basis.
WITHIN THE VALUE LIMITS
The upfront price does not exceed $300,000 or $1 million if the contract is for a period longer than 12 months.
TYPE OF CONTRACT
The contract is for the supply of goods or services (including financial services) or the sale or grant of an interest in land.
NO EXCLUSIONS APPLY
There are certain types of contracts or terms that are excluded. Please contact us to find our more.
The ACCC and the various state consumer protection agencies will share enforcement responsibilities in relation to general goods and services contract. ASIC will hold the enforcement responsibilities in relation to financial products and services. These bodies will undertake their roles in accordance with their usual compliance and enforcement policies.
However enforcement will generally be the responsibility of the parties involved in a contract and this may involve court proceedings or resolution through dispute resolution schemes or industry ombudsmen.
Only courts and tribunals will have the power to determine that a term is ‘unfair’. Contract terms found to be ‘unfair’ will be void and not binding on the parties; the rest of a contract will continue to operate to the extent possible and will be binding on the parties.
This may be a double edged sword as there are many ways striking out select terms might warp the effect of a contract into something not intended by the parties or that is generally not commercial for one or more parties. For example, a party might continue to be bound even though the value of contract may have diminished while the risks and costs associated with the contract could potentially increase.
Courts may also grant one or more of the following remedies:
- declaring terms to be void;
- varying a contract;
- granting injunctions;
- orders to provide redress (e.g. refunds);
- direct a party, at its cost, to provide services to the affected party; or
- any other orders in the court deems appropriate.