Earlier this year we released Alerts concerning a Bill that proposed to extend unfair contract term protections to small businesses (you can read the alerts here and here).

On 20 October 2015 this Bill was passed, amending the Australian Securities and Investments Commission Act 2001 and the Australian Consumer Law to extend unfair contract term protections to standard form “small business contracts.”

What contracts are “small business contracts”?

The legislation applies to standard form contracts where at least one party is a business that employs less than 20 people and where the upfront price payable under the contract does not exceed $300,000 or does not exceed $1,000,000 if the contract is for more than 12 months.  These thresholds were increased from $100,000 and $250,000 respectively since the Bill was introduced.

What is an unfair term?

A term of a small business contract is unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the parties; and
  • it causes detriment (financial or otherwise) to the other party.  

What changes will the Bill make to the operation of unfair terms in “small business contracts”?

The new law enables unfair terms in these contracts to be declared void.  The contract will only then continue to bind the parties if it can operate without the unfair term.  The law applies in addition to existing industry regulatory protections.

When does the law take effect?

The new law takes effect on 13 November 2016 and will apply to contracts entered into after this date.  It will also apply to existing contracts if they are renewed after 13 November 2016 and to the terms of existing contracts that are varied on or after this date.

What should I do now?

If you deal with small businesses, you should review your standard form contracts to ensure they comply with the new obligations.  If you are a small business you should become familiar with your rights under the new laws in relation to unfair terms.