On 12 November 2016, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) (Amendments) (‘the Act’), extends the existing unfair contract terms regime to include the new category of ‘small business contracts’.
The extension of this Act to small business contracts is significant, as the existing unfair terms regime will extend to include governing certain company-to-company contracts.
Under this regime, a term from a contract can be declared unfair if the term is unfair, and the contract is a standard form contract.
Small business contracts for the purposes of this regime means contracts in which one of the parties employs less than 20 employees and that are for either:
· Less than 12 months with an upfront price payable of less than $300k; or
· For 12 months or more with an upfront price payable of less than $1 million.
If the terms of any standard form small business contract are found to be unfair, they can be declared void by the courts.
This declaration can be sought by either a small business party to the contract or the relevant regulator – ACCC or ASIC.
Although there are no fines or penalties imposed on a contravening party, other remedies that flow from a declaration may include injunctions, compensation orders, and damages.
The courts are also empowered to issue redress orders to any consumers who are not parties to the enforcement proceedings in relation to the particular contract but who may suffer loss or damage as a consequence of the unfair term.
To fall within this extended regime, the small business contract must be a standard form contract. Regrettably there is no definition of a standard form contract contained in the Act. Considerations in determining what amounts to a standard form contract will include:
· Whether one party has all the bargaining power;
· If one party prepared it without discussion;
· The ability of a party to reject or vary its terms; and
· If the contract has been drafted to reflect the parties or the nature of the transaction.
If a small business contract amounts to a standard form contract, then the extension to the Act will only have effect if the contract contains a term that is unfair.
Terms will be potentially found to be unfair if they:
· cause a significant imbalance between the parties; or
· are not reasonably necessary to protect the legitimate business interests of the party advantaged by them; or
· would cause detriment (financial or otherwise) to a party if relied upon.
To determining whether a term of a consumer contract is unfair a court may take into account such matters as it considers relevant, but must take into account the following:
· the extent to which the term is transparent; and
· the contract as a whole.
As most businesses rely on standard contracts to conduct their daily business, the extension of this regime is likely to have a direct effect on their existing contracts.
In anticipation of the extension taking effect, it would be prudent to review all existing standard term contracts within your business in anticipation of the extension of the regime taking effect and amending any terms that you are concerned may be found to be unfair. These changes will apply to any new or varied arrangements and has such have the potential to be far reaching.