Businesses should review their standard-form contracts following proposed changes to Australian Consumer Law that aim to reduce the inclusion of unfair terms in small business contracts.
In many industries, for example, transport and cartage, companies require small supply businesses to enter into standard contracts which often favour one party. In some cases these contracts will contain:
- key performance indicators;
- penalty payments;
- extra rates and charges that can be charged for failure to comply; or
- unilateral termination provisions.
A term in a contract may be ‘unfair’ if it:
- causes an insignificant balance to the rights and obligations of the parties,
- is not necessary to protect the legitimate interests of a party and
- would cause a detriment to one of the parties if relied upon.
As a guide, the types of provisions which may be deemed unfair include (but are not limited to) a situation where one party can:
- set or vary the price without the other party having the right to terminate the contract;
- vary the characteristics of the services to be supplied under the contract;
- determine whether the contract has been breached or to interpret its meaning;
- engage in conduct whereby a party is forced to sign a contract on a ‘a take it or leave it basis’.
Currently, protection against unfair contract terms only applies to consumer contracts. The proposed Small Business and Unfair Contract Terms Act 2015 (the Act) will extend unfair contract terms protection to small business contracts. Under the Act, a contract is a small business contract if:
- at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons excluding casuals; and
- either of the following applies:
- the upfront price payable under the contract does not exceed $300,000; or
- the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
The Act will apply to the supply of goods or services other than financial services or products and the sale or grant of an interest in land.
If a court declares a term to be an unfair term, that term will be void and the contract will continue to bind the parties if it can operate without the inclusion of that unfair term.