Unfair terms in Contracts – Small Business
Ian Gray, Principal and Solicitor at Rethink Law
The Federal Government recently passed a law that provides protection for small businesses from unfair terms in standard form contracts. This law took effect on 12 November 2015.
The law will apply to a standard form contract entered into or renewed on or after 12 November 2015, where:
- it is for the supply of goods or services or the sale or grant of an interest in land
- at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis)
- the price payable upfront under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.
A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis. Examples include: agreements where one party can change the agreement without the consent of the other party, agreements that automatically rollover unless written notice is given before a set date that the recipient does not want the contract to rollover, agreements where one party has the right to terminate the contract but not the other and agreements with excessively wide indemnities. These examples are by no means exhaustive and many other types of agreements will be affected.
Importantly, terms that set the upfront price payable under the contract are not covered by this new law.
Ultimately, only a court or tribunal can decide that a term is unfair. If a court or tribunal finds that a term is ‘unfair’, the term will be void – this means it is not binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.
While most standard form contracts and contractual terms will be covered by the unfair contract terms law, there are a number of exceptions.
- Contracts entered into before 12 November 2015 (unless renewed on or after this date)
- Shipping contracts
- Constitutions of companies, managed investment schemes or other kinds of bodies
- Certain insurance contracts (e.g. car insurance)
- Contracts in sectors exempted by the Minister – no sectors are currently exempt.
- Terms that define the main subject matter of the contract
- Terms that set the upfront price payable
- Terms that are required or expressly permitted by a law of the Commonwealth, or a state or a territory (e.g. permitted under the Franchising Code or another prescribed industry code).
Our team of solicitors can support you with any questions you have around these changes. If you need help understanding the process or just have a general question, we’d love to support you. Feel free to book an appointment to come for a coffee (from our own in-house coffee shop, Recharge Espresso) and speak to one of our solicitors (02) 4962 4440.