Small Business Benefits from Unfair Contract Terms Law

Bad debtors
Bad Debtors – Learn how Bad Debt Damages Your Brand and Reputation
March 4, 2017
Tender Writing
9 Tips to Simplify Tender Writing and Making Tendering Easy
April 3, 2017
Small Business

Small Business Benefits from Law on Unfair Contract Terms : Effective 12 November 2016

The Australian Competition and Consumer Commission (ACCC) published details regarding the new small business law that came into effect from 12 November 2016. The legislation protects small business against unfair contract terms in standard form contracts.

The new law provides protection for small business in the case of:

  • supply of goods/services or sale/grant of an interest in land;
  • at least one of the parties is a small business;
  • the upfront price is no more than $300,000 or $1million if the contract extends beyond 12 months.
A small business is regarded as a business that employs less than 20 people, including regular casuals).

 Standard Form Contracts

The new law regards a standard form contract as
one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis.”
 Some of the examples provided by the ACCC as potentially being unfair contract terms include contract terms that:
  • allow only one party to avoid or limit their obligations under the contract;
  • allow one party only to terminate the contract;
  • penalise one party only for breaching or terminating the contract;
  • favours one party only to vary or change the terms of the contract.
The final decision on unfair contract terms will be a court of law or tribunal, which could be a costly exercise.

The Law excludes certain type of contracts:

  • Contracts entered into before 12 November 2016, unless renewed or varied after this date;
  • Shipping contracts;
  • Constitutions of companies or other kinds of bodies;
  • Certain insurance contracts;
  • Contracts in sectors exempted by the Minister – none currently.

The law excludes certain contract terms such as terms that:

  • deal with the main subject matter of the contract (if you do not have the main subject matter, you will not know what the contract is for)
  • set the upfront price payable (you do need to know the contract price after all);
  • are required or expressly permitted by a law of the Commonwealth, state or a territory (if it has been deemed legal, it is legal).

The change in law requires larger companies to review their standard terms and conditions in areas such as purchase orders, goods and services contracts.

The change gives protection to small business in an area where they really did not have much say in the past.

Protection for Small Business

Small business benefits from new law and will be protected against one-sided, unfair contract terms. This is certainly a great positive move for small business. It certainly helps small business to succeed in building business capability through avoiding one-sided unfair contracts.

For larger companies dealing with small business, now is the time to review your standard form contracts to make sure that post 12 November 2016 the appropriate systems, processes, training and contract templates are in place.

For more detail, it is worthwhile visiting the ACCC’s website.

Post Updated March 2017

About Celia:

Celia Jordaan is a freelance procurement and risk consultant at Ichiban Commercial Solutions, Perth Western Australia. With over 19 years experience, Celia has worked in different countries, locations and cultures in the areas of procurement, supply chain, contract management, law and risk. She has also worked in the area of risk management, contractor management and safety.

Grab the free resources on our website and register for the free monthly newsletter with procurement tips and invitations to future workshops.