The days of 10 and 12 November 2016 were significant for any business that deals with "small businesses". And that will be almost every business since small businesses, which are businesses that employ fewer than 20 people, make up 97.4% of Australian businesses.

On 12 November, the unfair contract term provisions in the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 were extended so that small businesses can now challenge a term which is "unfair", as consumers already could. On 10 November, the ACCC released a report on a review it conducted of potentially unfair terms used in business-to-business contracts. Since the ACCC is one of the regulators of the unfair contract term provisions, this report is a useful roadmap for business both large and small on what sort of terms might be "unfair".

The new unfair contract terms laws at a glance

A small business may challenge a term in a standard form contract which is also a "small business contract" on the basis it is unfair. A small business contract is a contract where one of the parties is a business that employed fewer than 20 persons at the time the contract was entered into, and the "upfront price" payable under the contract does not exceed:

  • $300,000 for a contract of up to 12 months in duration; or
  • $1,000,000 for a contract that is more than 12 months in duration.

Only a business which employed fewer than 20 persons at the time the contract was entered into (ie. a small business) may challenge an unfair term. If the term is found to be unfair, it is void and a court or tribunal may make various compensatory orders which are available to it under the Australian Consumer Law and Australian Securities and Investments Commission Act.

A term is unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  • it is not reasonably necessary 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.

The unfair contract term provisions apply to small business contracts entered into on or after 12 November or varied or renewed after that date. If a term in a small business contract is varied, the provisions apply to the varied term, on and from the day the variation takes effect, in relation to conduct that occurs on and after that day. If a small business contract is renewed, the provisions apply to the contract as renewed, on and from the day the renewal takes effect, in relation to conduct that occurs on or after that day.

The ACCC's analysis of some potentially unfair terms

On 10 November 2016, the ACCC released a report, "Unfair terms in small business contracts: a review of selected industries".

The report details an investigation undertaken by the ACCC into the use of business-to-business standard form contracts in the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management and agriculture industries to identify terms that may be unfair. If you operate in any of these industries and enter into standard form contracts with small businesses or consumers, this report is essential reading. This report will also be of interest to small businesses and consumers, who don’t operate in these industries, but enter into contracts with businesses that do.

The ACCC examined 46 business-to-business standard form contracts from across these seven industries then engaged with businesses to amend or remove terms which the ACCC considered problematic. The report gives examples of terms which the ACCC found concerning and explains how the ACCC thought the term could be amended to address its concerns.

The report says that once 12 November 2016 arrives (and it now has!), the ACCC will move to an "enforcement approach" to deal with unfair terms in small business contracts and enforcement will be a "priority for the ACCC". These statements should not be taken lightly. The ACCC has already brought several enforcement proceedings for unfair terms in "consumer contracts".[1]

Prior to commencing an enforcement approach for consumer contracts, the ACCC released its report "Unfair contract terms: industry review outcomes" where it engaged with businesses on a voluntary basis to address potentially unfair terms in consumer contracts. This report addressed the airline, telecommunications, fitness and vehicle rental industries and is worth reading for any business that operates in those industries and enters into standard form contracts with consumers. After releasing that report on 14 March 2013, the ACCC commenced enforcement proceedings against an internet service provider and a car rental business, being businesses from two of the four industries which the report focused on. So, participants in the seven industries addressed in the latest report should perhaps take particular note of the report.

It will be interesting to see when the ACCC brings its first enforcement proceeding for unfair terms in small business contracts. In the meantime, businesses should review standard form contracts they use when contracting with small businesses.