Small businesses and unfair contract terms
Have you recently signed an unfair contract as a small business operator?
If so, your small business may be protected under Australian Consumer Law.
Australian Consumer Law protects consumers from unfair terms in a contract. In November 2016, the law was amended to extend these protections to small businesses.
Is my small business protected? First Steps
To be protected from unfair terms as a small business, the contract must be a standard form contract entered into or renewed on or after 12 November 2016. A standard form contract is a contract prepared by one party where the other party has little opportunity to negotiate the terms. These contracts are typically offered on a take-it-or-leave-it basis. Additionally, the following criteria must apply:
If you have been listed as a Defendant (sometimes referred to as the Respondent), the proceeding is a civil one, meaning there is no immediate risk of criminal charges.
- at the time the contract is entered into, at least one party to the contract must be a business that employs fewer than 20 persons, and
- the upfront price payable under the contract must be less than $300,000 (or $1,000,000 if the contract is longer than 12 months), and
- the contract is for the supply of goods or services or the sale or grant of an interest in land.
When is a contract term ‘unfair’?
The law sets out examples of terms that may be unfair, including:
- terms that enable one party (but not the other) to avoid or limit their obligations under the contract
- terms that enable one party (but not the other) to terminate the contract
- terms that penalise one party (but not the other) for breaching or terminating the contract
- terms that enable one party (but not the other) to vary the terms of the contract.
What are the exceptions?
While the unfair contract terms laws cover most standard form contracts and contractual terms, there are several exceptions, including:
Generally speaking, yes. However, in some limited circumstances, you may not need a lawyer.
- contracts entered into before 12 November 2016 (unless renewed on or after this date)
- shipping contracts
- constitutions of companies, managed investment schemes or other kinds of bodies
- certain insurance contracts (e.g. car insurance)
- contracts in sectors exempted by the Minister – no sectors are currently exempt
Who can assess fairness?
Only a court or tribunal can assess the fairness of terms. If a court or tribunal finds that a term is ‘unfair’, the term is no longer valid. However, the rest of the contract will continue to bind the parties.
Do you have concerns that you may have entered into an unfair contract?
Do you feel like you are eligible for protections under the law?
Contact us today on 03 8595 9580