A Step Forward in Supporting Small Businesses

A fundamental principle underlying the common law of contract is the freedom of the public to contract on the terms and conditions as they desire. However, this fundamental principle can be eroded where there is an inequality of bargaining power, often present between the general public and large businesses. In order to streamline commercial practices, large businesses generate standard form contracts which are then presented to the public on a “take it or leave it” basis. Everyday examples of a standard form contract can include your mobile phone plan, your electricity contract and your home or car insurance policies.

Under Australia’s consumer legislation, a person who enters a standard form contract for goods, services or interests predominantly for personal use can be protected against “unfair” contract terms. Where appropriate, “unfair” contract terms can be deemed void and unenforceable. Such terms can include:

  • Forfeiture of money clauses;
  • High default rates of interest;
  • Clauses allowing unilateral variation in price; and
  • Wide termination clauses for one party.

The legislative protection however does not currently extend to contracts made in pursuit of commercial interests and therefore small businesses, equally at the whim of the trading terms and conditions of large businesses, are not protected. The legislative limitation hardly seems justified when small businesses are equally in need of mobile phone plans, electricity contracts and insurance policies. Success of our small businesses is essential in order to further public interests of the creation of employment and a competitive market place.

In an attempt to address the inequity in bargaining power between small and large businesses the Federal Government has introduced the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 into the House of Representatives on 24 June 2015 and if passed, will effect the necessary change to Australia’s consumer legislation to extend the unfair contract terms protection to small businesses.

The proposed legislative change would affect all standard form contracts where a small business is a party including retail leases, franchise agreements, finance agreements, sub-contractor agreements, supply agreements, amongst many others. In anticipation of the change, businesses should review their standard form contracts to determine areas of potential exposure should the Bill be passed.

For commercial legal advice in this area, McLaughlins Lawyers on the Gold Coast can assist you with respect to your rights, entitlements and obligations under Australia’s consumer legislation.


Author: Amy Douglas

Partner: Ian Kennedy

Date: 13/08/2015