Unfair Contracts and Small Business

The Competition and Consumer Act 2010 (Cth) unfair contract provisions extend beyond consumers to small business contracts as well. Schedule 2 item 23(1) Australian Consumer Law (ACL) provides a term of a small business contract is void if the term is unfair and the contract is a standard form contract.

A standard form contract is essentially a contract where you ‘take it or leave it’, with the contracting party unable to negotiate or amend any of the terms and conditions.

A contract is a small business contract if:

(a) the contract is for a supply of goods or services, and

(b) at least one party to the contract makes the contract in the course of carrying on a business and at a time when the party employs fewer than 100 persons.

The ACL provides that a term of a consumer contract is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Examples of possible unfair contract terms include:

• Automatic renewal terms without notice

• Unilateral renewal or termination rights

• One sided limitation of liability or indemnity terms

• Unilateral variation of contract terms

• Requirements for prepayments with no ability to get a refund

• Right to unilaterally vary fees

Significant penalties can be imposed for unfair contract terms. We can assist in reviewing standard form agreements for unfair contract terms or assisting businesses drafting standard form contracts that are unlikely to be caught by unfair contract legislation.