Protection to “Small Businesses” from Unfair Contract Terms

Further to our blog of July 2015 on this topic, from 12 November 2016 a new law will come into operation which is aimed to protect small businesses from unfair terms in standard form contracts.  The law (Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth)) will effect standard form contracts for the supply of goods or services and the sale or grant of an interest in land, where at least one of parties is a small business (employees less than 20 people) and where the upfront price payable is no more than  $300,000.00 or $1 million if the contract term extends beyond 12 months.

Examples of unfair terms include:

• terms which enable a party (but not the other party) to avoid or limit their obligations;
• terms which enable a party (but not the other party) to terminate the contract;
• terms that penalise a party (but not the other party) for breaching the contract; and
• terms that enable a party (but not the other party) to unilaterally vary the terms of the contract.

Unfortunately, it will be up to the courts to determine whether a term is unfair.  That is, it is not the role of the Australian Competition and Consumer Commission to make a determination on whether a clause in a contract is fair or unfair.

The effect of a term being determined “unfair” will render that term void.  However, the balance of the contract should continue to bind the parties to the extent that the contract is capable of operating without the unfair terms.

It should be noted that certain contracts are excluded from the operation of the law, which include, constitutions of companies, managed investment schemes and certain insurance contracts amongst others.

We suggest clients review their standard form contracts for compliance.


Please contact our Commercial team today if you would like to know more.