The Coalition’s Small Business Policy (released 13 August 2013) indicates that the Coalition plans to extend the current ‘unfair contracts’ regime in the Australian Consumer Law to small businesses, as Partner, George Raitt and Lawyer, Ivor Kovacic report.

As it currently stands, the ‘unfair contracts’ provisions apply only to ‘consumer contracts’. That is, contracts for the supply of goods or services to an individual who acquires the goods or services wholly or predominately for personal, domestic or household use. At present, the Australian Consumer Law protects individual consumers not small business purchasers.

The unfair contracts regime applies only to terms in standard form contracts. Whether or not the contract is ‘standard form’ will be a question of fact. Where a term of a standard form contract is found to be ‘unfair’, it is deemed void. However, the unfair contract regime does not apply to terms essential to the contract (i.e. that define the main subject matter of the contract, sets the upfront price payable, or are expressly required by law).

Three elements must be established in order for a term to be unfair. First, the term must cause significant imbalance in the parties’ rights and obligations arising under the contract. Second, the term must not be reasonably necessary to protect the legitimate interests of the party that is advantaged by the term (it is presumed that the term is not reasonably unless the party proves otherwise). Third, the term must cause detriment to a party if it were to be applied or relied on.

In the ACCC’s report on ‘unfair contract terms’ released earlier this year, the ACCC identifies eight key provisions that it considers may be unfair:

  • Contract terms that allow a business to change the contract without consent from the customer.
  • Terms that cause confusion about the role of the business as agent and seek to unfairly absolve the agent from any liability.
  • Terms that unfairly restrict the consumer’s right to terminate the contract.
  • Terms that suspend or terminate the services being provided to the customer under the contract.
  • Terms that make the customer liable for things that would ordinarily be outside of their control.
  • Terms that prevent the customer from relying on representations made by the business or its agents.
  • Terms that seek to limit the consumer guarantee rights.
  • Terms that seek to remove the customer’s right to a credit card chargeback facility when buying the service through an agent.

It is unclear to what extent the Coalition will extend the unfair terms regime, how small businesses would be defined and whether any limitation on the use of the goods or services would remain. Nonetheless, the potential impact of the Coalition’s proposed changes on businesses supplying to other businesses using standard contracts terms is substantial.

Many of the above terms would be invalid or unenforceable at law in any event. Such provisions in consumer contracts should be reviewed and re-written to ensure validity and compliance with the Australian Consumer Law. It would be prudent to review similar terms in business to business contracts.