Businesses, small and large, need to be aware starting 12 November 2016, that unfair contract protections given to consumers will extend to standard form small business (fewer than 20 employees) contracts. This is being instituted through the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015, (‘the Legislation’). This applies to small businesses who deal with larger organisations where there is usually a disparity in bargaining power leading to terms of the contract being unfair. It is vital business consider whether terms of template contracts used when contracting small businesses could be ‘unfair’, with a view of addressing such issues.
The Legislation will apply to ‘standard form contracts’ that:
- involve small business employing less than 20 people (either acquirer or supplier);
- ‘upfront price payable’ under the contract is for no more than $300,000 or $1 million where the contract is for longer than 12 months; and
- was entered into or renewed, or the applicable term was varied, on or after 12 November 2016.
‘UPFRONT PRICE PAYABLE’
Upfront price payable is calculated by the amount no including any contingent charges or fees which may or may not arise depending on the occurrence or non-occurrence of a particular event. It focuses on the agreed-to-sum that is to pass from one party to the other as payment for the goods or services that are to be supplied.
Unfair term is not expressly provided in the legislation, but it does list out a non-exhaustive series of clear contractual scenarios that demonstrate when terms may be considered unfair. Generally, when a particular contract term unreasonably provides one side with a clear and unnecessary advantage or level of power in the relationship and which can be enforced to the detriment of the other party, the court may consider the term as unfair. However, terms that define the subject matter of the contract and set up upfront price payable under the contract are exempt.
Businesses should note there are exclusions to the protections, one of which being individually negotiated contracts. Insurance contracts regulated under the Insurance Contracts Act 1984 and the constitutions of companies, managed investment schemes or other kinds of bodies are additionally excluded.
The responsible Minister has power to specify additional law deemed enforceable to the unfair contract terms law. Contracts subjected to this law will be exempt from the unfair contract terms law.
APPLICATION OF LEGISLATION
This change in protection has been long awaited by small businesses as it gives them the potential to significantly enhance their ability to provide services to big businesses. Previously small businesses had little options but to sign unfair contracts when dealing with large businesses. ASIC recognised this shortcoming in the system and sought to rectify the issue by implementing this change. The Legislation allows businesses to apply to a court or tribunal for declarations in relation to these contracts that a business may feel is unfair.
Whether a small document or large complex company structuring, Irish Bentley Lawyers brings extensive experience in all business law related matters.
Our team can assist and advise when entering into contracts ensuring conformity with the relevant law. Our solicitors can aid in the drafting, reviewing and disputing of contracts. We are experienced in the protection of rights for individuals, start-ups and established businesses.
At Irish Bentley Lawyers our team can provide legal knowledge, advice and protection during any stage of your matter.
If you require assistance in any of contract or commercial area, please call our office on (07) 3229 4060 for more information.