Further to our
blogs of July 2015 http://nfcommerciallawyers.blogspot.com/2015/07/proposed-protection-to-small-businesses.html
and April 2016 http://nfcommerciallawyers.blogspot.com/2016/04/protection-to-small-businesses-from.html,
from 12 November 2016 amendments to the Australian Consumer Law will come into
operation which are aimed to protect small businesses from unfair terms in
standard form contracts.
Standard form
contracts are contracts where the terms and conditions are set by one party and
the counter-party has little or no opportunity to negotiate those terms. For
the purposes of the new law, they include contracts:
- for the supply of goods or services or the sale or grant of an interest in land;
- where at least one of the parties is a “small business”, being a business employing less than 20 people;
- where the upfront price payable under the contract is no more than $300,000 or $1,000,000 if the term of the contract is greater than twelve months;
- entered into on or after 12 November 2016 and variation to existing contracts occurring after that date.
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,
only a court or tribunal will be able to to determine whether a term of a contract
is in fact 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 term.
Certain
contracts are excluded from the operation of the law which include contracts
entered into before 12 November 2016 (unless renewed on or after that date),
shipping contracts, constitutions of companies, managed investment schemes,
certain insurance contracts and contracts in sectors exempted by the Minister.
If you
think that a term in a standard form contract is unfair, the ACCC recommends
you request the other party to remove the term or amend it so that it is no
longer unfair. The ACCC further recommends that in the absence of a
satisfactory outcome, that the aggrieved party seek a declaration from a court
that the relevant term is unfair. Accordingly, it is not possible for a party
to a standard form contract to unilaterally declare that a term in a contract
is unfair and claim it has no impact on that party.
It is
recommended that parties who impose standard form contracts on small businesses
structure a compliance program aimed at identifying potential unfair terms in
their precedent documents and take steps to amend those terms ahead of 12
November 2016. A compliance program
would entail:
- a review of existing contractual arrangements to identify counter-parties who qualify as small businesses;
- identifying which of those contracts with small businesses are in fact standard form contracts;
- identifying potentially unfair terms within contracts with those small businesses;
- determining how to deal with those unfair terms; and
- amending precedent documents to ensure all standard form contracts entered into with small businesses on and after 12 November 2016 comply with the new laws.
If you
require assistance with reviewing your standard form contracts please contact
Andrew Bini.
