Proposed Protection to “Small Businesses” from Unfair Contract Terms

The Federal Government’s Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 was tabled in Parliament in 24 June 2015.  If passed in its current form the Bill will afford “small businesses” protection against unfair contract terms in “small business contracts” in a manner similar to the protections consumers currently have against unfair contract terms in consumer contracts under the Australian Consumer Law (see clause 23 of schedule 2 of the Competition and Consumer Act 2010 (Cth)).  Amongst other things, the Bill proposes to amend the ACL to extend the prohibition on unfair contract terms (which currently only apply in relation to consumer contracts) to small business contracts.

 

Small businesses are defined in the Bill as businesses with less than 20 employees. Small business contracts are defined in the Bill as contracts for the supply of goods or services or the sale or grant of an interest in land, where one party is a small business and the upfront price payable under the contract does not exceed $100,000.00 or the contract has a duration of more than 12 months and the upfront price does not exceed $250,000.00.

 

The Bill effectively provides that a term of a small business contract will be void if the term is “unfair” and the contract is a “standard form contract”.

 

Section 24 of the ACL defines unfair terms as those that would cause a significant imbalance in the parties’ rights and obligations arising under the contract, those which are not necessary to protect the interest of the party who would be advantaged by the term and those terms which would cause detriment to the other party if they were relied on.

 

Section 27 of the ACL provides some guidance for determining whether a contract is a standard form contract.  These include contracts where one of the parties has most of the bargaining power and where a party is required to either accept or reject the terms of the contract without an effective opportunity to negotiate the terms of the contract.

 

The Federal Minister for Small Business the Hon Bruce Billson MP in March this year noted on his web page that the Australian Small Business Commissioner had observed instances of unfair contract terms in telephone and internet contracts, office equipment leasing contracts and retail premises leases.