Following public consultation processes, new laws came into force on 12 November 2016 which extended existing consumer protection laws against unfair contract terms to “small business contracts” (e.g. business to business contracts). Under these laws, small businesses can also have an “unfair” term in a “standard form contract” declared as void in specified circumstances. In doing so they would not have to comply with the term.
Findings identified in the Explanatory Memorandum to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 suggest that, like consumers, small businesses are vulnerable to the inclusion of unfair terms in standard form contracts as they often lack:
The stated objective of this reform is to promote fairness in contractual dealings with small businesses with regard to standard form contracts. This will reduce small business detriment and have positive impacts on the broader economy by increasing small business certainty and confidence, and providing for a more efficient allocation of risk.
WHEN DOES PROTECTION TO CONSUMERS / SMALL BUSINESSES APPLY
The unfair contract terms protection provisions are contained in ss23 – 28 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law). Section 23 provides that a term of a “consumer contract” and “small business contract” is void if the term is “unfair” and the contract is a “standard form contract”. We do not examine consumer contracts which were protected prior to the amendments but examine the concepts of “small business contracts”, “standard form contracts” and when terms will be considered to be “unfair”.
Small business contract
In summary, in order for the contract to be a small business contract, each of the following must apply:
Standard form contracts
Standard form contracts are everywhere for example IT services contracts, advertising services contracts, mobile phone contracts, licences of office space, gym memberships etc. They are an efficient and effective way for businesses to contract. The Court will take into account any facts that it considers to be relevant however at the time of writing it “must” take into account the following in determining whether a contract is a standard form contract:
Excluded terms: the protection does not extend to terms to the extent that they define the main subject matter of the contract, set the upfront price payable under the contract, or are terms required by law.
Excluded contracts: the protection does not extend to contracts which are individually negotiated, or to certain types of contracts such as contracts of marine salvage or towage, a charterparty of a ship, and contracts for the carriage of goods by ship, constitutions of companies or managed investment schemes or other kinds of bodies.
After 12 November 2016: The contract needs to have been entered into, renewed or rolled over after 12 November 2016. The law also applies to amendments to contracts after 12 November 2016 but not to the terms which have not been amended.
There is a three limb test to unfairness. A term will be “unfair” if:
The Court “must” take into account the extent to which the term was transparent and the contract as a whole. Make sure your print is not too fine!
Some prescribed examples of the types of terms which may be unfair are as follows:
WHAT DOES THIS MEAN FOR BUSINESSES?
Unfair terms can be declared void and unenforceable. The contract does however continue to bind the parties if it is capable of operating without the unfair term. It is important that the contract contains for example a suitable severance clause, and that the relevant provisions are drafted for severance.
Whilst no fines or penalties can be imposed on a contravening party, there are a number of other remedies that it may face including injunctions and damages.
Businesses should review their contract terms if they have not already done so. If you are on the receiving end of an unfair contract term, seek advice.
Contact our Sydney business lawyers for assistance in relation to the above. Our commercial lawyers, business lawyers, and disputes lawyers provide expertise in corporate and commercial advisory services as well as litigation and dispute resolution. Take a look also at a sample selection of our more basic fixed fee legal services.
 The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) amended the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth)
 Explanatory Memorandum to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015
 Including casual employees if they are employed on a regular and systematic basis (s.23 (5)).
 The meaning of this can be taken intrinsically from s.26 (2) as, in summary, being the price that is to be provided for the supply that is disclosed at or before the time the contract is entered into. It does not however include any price that is contingent on an event happening. In other words, it is the known price of the contract that will definitely be paid e.g. in a 12 month phone contract costing $10 per month, the upfront cost will be $120.
 i.e. it is expressed in reasonably plain language, legible, presented clearly, and readily available to any party affected by the term
 s23 (2) of The Australian Consumer Law
The information provided in this article is provided by way of general information only. It does not constitute legal advice, and should not be relied upon as such. Specific independent legal advice should be obtained before deciding to act, or not to act, upon the views expressed or information contained in this article.
Copyright of Heathfield Grosvenor 2016. All rights reserved.