Unfair Contract Terms Law – Are You Reviewing your Standard Form Contracts?
The clock struck 12h00. Have you reviewed your standard form contracts to ensure that it complies and protects small business against unfair contract terms as set out in the new unfair contract terms legislation? Or do you regularly sign contract for financial services?
The new legislation came into effect on 12 November 2016 and now is the time to review your standard form contracts, if you have not done so already.
How to determine what classifies as standard form contracts?
A small business contract classifies as a standard form contract when related to:
- a financial product, or
- the supply or possible supply of financial services.
The law contains no definition for what is a ‘standard form contract’.
In general a standard form contract is a contract:
- that has been prepared by one party to the contract
- without room to negotiate by the other party.
It is a contract presented on a ‘take it or leave it’ basis.
What is the new Unfair Contract Terms Law?
The unfair contract terms law protections will apply to standard form contracts for small business entered into, or renewed, on or after 12 November 2016, where:
- the contract applies to the supply of financial goods or services
- at least one of the parties is a ‘small business’ , and
- the upfront price payable under the contract does not exceed $300,000, or $1 million if the contract is for more than 12 months.
A “small business” is a business:
- employing fewer than 20 people,
- including casual staff employed on a regular and systematic basis.
the Unfair Contract Terms Law does not apply to contracts entered into before 12 November 2016. However, once the contract gets extended or changed on/after 12 November 2016, the legislation applies to the extended or changed term of the contract but not to the rest of the contract.
The law appoints ASIC as the watch dog. ASIC ensures that investor and financial consumer trust and confidence remains promoted and protected.
ASIC acts as the custodian on the Unfair Contract Terms Law.
Unfair contract terms – now what?
The onus still rests with the small business to show that their standard form contracts contain unfair contract terms and that the contracts have been presented on a “take it or leave it” basis.
If this occurs, the small business can approach court to determine whether any terms is “unfair”.
Where a term is found to be unfair, the specific term will not be binding. The rest of the contract will continue to bind the parties if it is possible to operate the standard form contracts without the unfair term.
Where to find more information about the Unfair Contract Terms Law and Standard Form Contracts:
The ASIC website contains useful information on standard form contracts:
The new legislation provides an opportunity for small business to have recourse against the “take it or leave it” attitudes of larger corporations. It provides better opportunity for small business to have a say on contracts that impact on their business capability and capacity.
About Celia Jordaan:
Celia Jordaan is a procurement and risk consultant at Ichiban Commercial Solutions, Perth Western Australia. With over 20 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.