From 12 November 2016, unfair contract protections have been extended to cover small businesses.
The regime applies to make unfair terms in certain types of contracts void and unable to be relied upon.
What contracts are covered?
The types of contracts that are covered by this regime are all contracts entered or renewed after 12 November 2016:
- For the supply of goods or services or sale of land;
- Where one of the parties to the contract is a small business employing less than 20 people; and
- Where the upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.
These terms will cover a wide range of typical consumer contracts, such as supply contracts for product or stock or even commercial leases for premises. If the contracts used in these circumstances contain unfair terms and are standard form contracts, the unfair terms will be void.
What terms are unfair?
There are many examples provided in the consumer law of contract terms that may be unfair. These include:
- Terms that allow one party (but not the other) to vary, renew or terminate the contract;
- Terms that penalise one party to the contract (but not the other);
- Terms that allow one party (but not the other) to determine whether a contract has been breached;
- Terms that limit a party’s right to sue the other.
These examples are by no means exhaustive, meaning that a wide array of terms could be deemed unfair. The test to determine if a term is unfair is whether it:
- Would cause a significant imbalance in the parties’ rights and obligations under the contract;
- Is not reasonably necessary in order to protect the interests of the party benefiting from the term; and
- Would cause detriment to a party if it applied.
Terms providing for uncommercially high interest for defaults or significant penalties for delays could be deemed unfair under this test.
What is a standard form contract?
Any standard contract that is typically used by a business could be deemed a standard form contract if any of the following factors apply:
- Where one party has all the bargaining power;
- Where one party prepared the contract before any discussion by the parties in relation to the transaction;
- Where the contract was presented to a party on a ‘take it or leave it’ basis; or
- Where a party was not given the opportunity to negotiate the terms of the contract.
The standard terms and conditions used by many businesses could be found to be standard form contracts.
If you provide goods or services to small businesses, your contracts may require review to ensure they do not fall afoul of these protections.
If you think your contracts may be unfair, or you are a small business who has signed an unfair contract, contact McLaughlins Lawyers on the Gold Coast for all your contract law needs.
Author: Sonaaz Farhadi-Fard
Director: Ian Kennedy