Effective for contracts entered into, renewed (or specific terms varied) on or after 12 November 2016, the Competition and Consumer Act 2010 (Cth) (CCA) can be used by small businesses to avoid certain contractual terms that are ‘unfair’.
Who benefits now?
Small businesses, which the CCA effectively defines as businesses that employ fewer than 20 persons, which enter into ‘small business contracts’.
Do all casual employees count towards this number?
The CCA states that a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis.
What is a small business contract?
A contract is a ‘small business contract’ if it:
- is for the supply of goods or services, or a sale or grant of an interest in land; and
- one of the parties to the contract is a small business at the time the contract is entered into; and
- either of the following apply:
3.1. the upfront price payable under the contract does not exceed $300,000.00; or
3.2. the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.00.
When is a term ‘unfair’?
The CCA defines a term as ‘unfair’ if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- 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 CCA also states that while a court may take into account any relevant matters to determine unfairness of a term, it must take into account the extent to which the ‘unfair’ term is transparent and the contract as a whole.
The CCA also provides some examples of the kinds of terms that may be unfair i.e unilateral termination clauses, one-sided penalty clauses, one-sided variation of contract clauses and one-sided limitation of liability clauses among others.
What happens if a term is ‘unfair’?
An unfair term in a small business contract will be ‘void’ (meaning that it has no effect), however the rest of the contract will continue to bind the parties if it is capable of operating without the unfair term.
What should I do?
Small businesses should review its contracts to ensure that terms it relies upon in its own contracts are not unfair.
Small businesses should also review its contracts with other parties to determine whether to challenge terms which appear unfair.
This blog is a very brief summary of the recent changes to only the CCA. There are statutory exclusions which may apply to certain contracts and the Australian Securities and Investments Commission Act 2001 (Cth) also has new unfair terms protections in relation to financial products and services.
For more information on unfair terms, contracts and commercial law in general please contact Shavin Silva or Mirella Angelino at Pace Lawyers on (08) 8410 9294 or email them via this form.