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New Unfair Contract Law Starts 12 November 2016

New Unfair Contract Law Starts 12 November 2016

By Ben Hibbert
September 9, 2016

New legislation takes effect from 12 November 2016 which extends the scope of the consumer law’s unfair contract terms protection into the world of business to business contracts.

Two Months Left to Review Your Contracts

Unfair terms in small business standard form contracts entered into, varied or renewed on or after 12 November 2016 will be void.

The law was changed to protect small enterprises from unfair terms in standard form contracts but has significant ramifications for enterprises of all sizes. If you haven’t already taken a moment to review your contracts then now is the time to do so.

Does it Apply to My Contract?

The law applies where:

  • the contract was prepared by one party and the other party had little or no opportunity to negotiate the terms;
  • the contract is for the supply of goods or services or the sale or grant of an interest in land;
  • at least one of the parties to the contract employs less than 20 people; and
  • the upfront price payable under the contract is no more than $300,000 (or $1,000,000 if the contract is for more than 12 months).

What is An Unfair Term?

A term of a contract is unfair if:

  • it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and 
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. 

The law sets out examples of the types of terms which may be unfair including:

  • terms that enable one party (but not another) to avoid or limit their obligations under the contract;
  • terms that enable one party (but not another) to terminate the contract; and
  • terms that penalise one party (but not another) for breaching or terminating the contract.

How Will it be Enforced?

The law will be administered by the ACCC (in the case of everyday goods and services) and ASIC (in the case of financial products and services). The ACCC have indicated an initial focus on advertising, telecommunications, franchising, retail leasing, agriculture and independent contractors.

We’d also expect the laws to be tested quickly by parties to unfair contracts. If a court determines a contract term to be unfair then that term will be void. The rest of the contract may remain in operation to the extent that is possible without the term, although there are a range of additional orders available to the court.

What Should I Do Before 12 November 2016?

If your business uses standard form contracts or standard form T&Cs you should review these now to ensure:

  • contracts entered after 12 November 2016 do not contain unfair terms; and
  • contracts which renew on or after that date are changed to comply with the new law.

If your business is bound by or offered standard form contracts or T&Cs:

  • where possible defer entering any new contract until 12 November 2016;
  • check renewal dates on existing business contracts to identify which contracts will be subject to the new law; and
  • identify potential unfair terms in proposed or existing contracts and discuss them with the other party.

While the new laws will give added protection to businesses from the effects of unfair contract terms, going to court remains an expensive and time consuming process. Preparation and early action should help save your business time, money and headaches, and foster stronger business relationships.

We can assist with:

  • review of contracts for unfair terms issues
  • advice regarding the new unfair terms legislation as it applies to your business
  • communication and negotiation with your business suppliers and customers in relation to unfair terms

Further information

Ben Hibbert
Corporate & Commercial