Small Business Unfair Contract Terms laws commence soon!

22 August 2016


The 12 month grace period for companies to get their standard form business to business (B2B) contracts in order is almost up.

On 12 November 2016, the existing unfair contract terms provisions of the Australian Consumer Law which only apply to ‘consumers’ contracting for personal or domestic purposes will be extended so that they also apply to standard form small business contracts.

A contract will be a relevant “standard form small business contract” if:

  • at least one of the parties to the contract has less than 20 employees (including casual staff employed on a regular or systematic basis);
  • the upfront price payable under the contract does not exceed $300,000, or $1 million where the contract term is greater than 12 months;
  • the contract is for the supply of goods or services or the sale or grant of an interest in land; and
  • the contract is presented on a “take it or leave it” basis, with no genuine opportunity for the small business to negotiate the terms.

A term will be deemed unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations;
  • would cause detriment (financial or otherwise) to a party if relied on; and
  • is not reasonably necessary to protect the interests of the party advantaged by the term.

In assessing a term for unfairness, regard will also be had to the transparency of the contract (i.e. if the term is expressed in reasonably plain language, is legible and presented clearly to the affected party) and the contract as a whole.

Terms of a standard form small business contract which are deemed ‘unfair’ will be void and unenforceable. This is likely to have significant implications, in particular, for the many B2B contracts that contain broad limitations and exclusions of liability. In the event that such clauses are deemed unfair, rather than simply being ‘read down’ (i.e. replaced with a fairer term), these clauses will be struck out of the contract, leaving the company exposed to unlimited liability.

Next steps

The new B2B laws will apply to contracts entered into or renewed, or terms of existing contracts that are varied, on or after 12 November 2016. To avoid becoming the ACCC’s test case on the new laws, companies should take action now to review and amend their standard form business contracts and to implement any consequential system and procedural changes.

Thomson Geer has extensive experience drafting and reviewing contracts for compliance with unfair terms laws. We have worked closely with the ACCC and other regulatory bodies in relation to compliance matters and have a good understanding of regulators’ views of unfairness. Please contact us to discuss your requirements.

Written by:

Graham Phillips | Partner | +61 3 9641 8639 | 

Kimberley Lloyd | Special Counsel | +61 3 9641 8772