The ACCC has announced that the new provisions extending the unfair contract protections of the Australian Consumer Law (ACL) to small businesses will be a priority in 2017.
The law to extend the unfair contract protections of the Australian Consumer Law (ACL) for consumer contracts to standard form small business contracts came into effect on 12 November 2016.
All standard form small business contracts entered into or renewed on or after 12 November 2016 are governed by the new legislation, as are terms of pre-existing contracts that are varied after this date.
The ACCC has warned that it will be taking enforcement action against companies across a range of industries over business to business unfair contract terms this year. The ACCC has indicated that it has received 48 complaints from businesses about unfair contract terms since the introduction of the laws in November 2016. The ACCC has also confirmed that a number of investigations have also been commenced as a result of these complaints and issues raised in the recent industry review.
What sort of terms are ‘unfair’?
The ACCC conducted an industry review in November 2016 and analysed the provisions of 46 contracts across the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management, and agriculture sectors. From this review, the ACCC identified a number of types of clauses which it considers to be potentially unfair, which continue to be used in standard form contracts, including:
- the right for one party to unilaterally vary all terms (or at least important terms) in an unconstrained way, for example, without the right of the other party to terminate the agreement in light of the variation;
- broad and unreasonable powers for one party to protect themselves against loss or damage by imposing broad indemnities or limitations of liability (e.g. limiting liability of the larger business where the larger business is itself responsible for the loss or damage);
- the right for one party to unreasonably cancel or end an agreement as it suits them; or
- the right to unreasonably limit or prevent small businesses from exiting their contracts.
What you need to do
There is quite some uncertainty as to when the legislation will apply in any given circumstance, particular due to the way ‘small business’ is defined in the legislation. For example, the drafting of the legislation means that businesses may not know whether the regime applies without enquiring into the head count of their potential small business counter-party.
Given these uncertainties, and the ACCC’s particular focus in this area, it is imperative that businesses review all standard form contracts to if there is a possibility that they will be entered into with a small business.
Businesses should review their standard form contracts to, at the least, temper the most egregious provisions particularly in circumstances where they are rarely, if ever, relied on.
Alternatively for some agreements, businesses may look to start negotiating their terms to avoid the application of the regime, as the provisions only apply to standard form contracts. However, proper records of such negotiations should be maintained.