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Tony, Michael and David Partners at ABKJ
ABKJ Lawyers

Protection From Unfair Contract Terms

From Saturday 12 November 2016, unfair contract term protections will extend to ‘small businesses’ under a new law. The new law established under the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) aims to protect small businesses with contracts that contain unfair terms entered into or renewed on or after 12 November 2016, or terms of existing contracts that are varied on or after this date.

Why do I need to know this?

If you have a ‘small business’, the new regime will apply to your contracts that contain unfair terms (and are found to be as such). This will allow you to apply to the courts for a declaration that the unfair term be void, or protect yourself from any unfair terms in any form of commercial litigation. Before this, the protection only extended to individuals contracting with businesses for consumer purposes.

Am I protected? Here’s a checklist.

Checklist Yes No
1.    Do you have a small business?
2.    Is it a small business contract?
3.    If yes, is it a standard form contract?
4.    Does it contain ‘unfair terms’?
  1. Do I have a small business?

A small business is legally defined as having less than 20 employees (including full time, part-time and casual) at the time the contract was entered into. Part-time and casual employees who are on a systematic basis are counted regardless of hours worked.

  1. Is it a small business contract?

A small business contract includes contracts with an up-front price that does not exceed $300,000 for contracts lasting up to 1 year or $1 million for contracts lasting more than 1 year.

  1. I have a small business with a small business contract. But is my contract a standard form contract’?

A standard form contract is generally known as a ‘take it or leave it’ contract. This means that the contract was pre-prepared by one party and generally has no room for the other party to negotiate its terms. The courts will usually determine whether the contract is a standard form contract.

The new laws relate to standard form contracts for certain transactions, including:

  • A supply of goods and services;
  • The sale or grant of an interest in land;
  • The sale of financial products;
  • Provision of financial services.
  1. Does my contract have unfair terms?

A term is unfair under the new regime if it:

  • Causes significant imbalance in the party’s rights and obligations;
  • Is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • Causes financial or other detriment to the other party.

Examples may include when only one party has the upper hand in the contract. For example, the contract lists that only one party may vary, renew or terminate the contract or only one party may avoid or limit the performance of the contract.

Other key indicators that the contract contains an unfair term is when the contract limits one party’s right to sue the other party or only one party is penalised for a breach of termination of the contract.

I have unfair terms in my contract. What protections are there for me?

If you believe you fit the criteria above, you may be eligible to ask the court for a declaration that the unfair term is void.

Our key recommendation to small businesses is to prepare for the new law by:

  • Reviewing all contracts;
  • Keeping a close eye on contracts that meet the monetary threshold of this new rule; and
  • Holding an educational seminar to staff to convey the new rule.

If you are a small business, this new rule is a light at the end of the tunnel in terms of unfair business transactions.

If you require any legal advice about unfair terms, please do not hesitate to contact ABKJ Lawyers.