From 12 November 2016 unfair terms that appear in standard form contracts involving small business are void and cannot be relied upon. To qualify as a small business contract, one of the parties must have less than 20 employees and the upfront price payable under the contract must not exceed $300,000 or, if the contract is for more than 12 months, $1,000,000.

Using the parallel legislation that already applies to consumers the ACCC has given examples of the types of terms that may be declared void including:

  • A term that allows one party to unilaterally change the terms of the contract. This is a particularly applicable to web terms where parties often assert that it is it is responsibility of the user to update themselves in relation to changes to the terms from time to time.
  • A term that permits one party to limit performance of the contract.
  • A term that permits one party to terminate the contract as a result of the inconsequential breach.
  • A term that imposes a penalty on one party for a trivial breach.
  • A term that allows one party to vary the payment price under the contract without the right of another party to terminate the contract. This often occurs if payments are due in one currency and one party seeks to vary the payments depending on the exchange rate, or to enable a party to pass on increased costs of goods.
  • A term that enables a party to substitute different (albeit similar) products or services than what was originally agreed.
  • A term that allows one party to determine whether the contract has been breached, how the contract is to be interpreted or which enables one party to have exclusive discretion in determining the standard of quality of goods supplied.
  • A term that enables one party to sign the contract without the other’s consent.
  • A term that limits a party’s right to sue another party.

Many of our small business clients are often presented with standard form contracts from large national or international suppliers of services. Those documents should be checked and fully reviewed prior to the legislation taking effect. Similarly, small businesses dealing with other small businesses need to ensure that their own documentation is compliant.

Please note that the above is just an overview, the legislation is far more complex.