From 12 November 2016 unfair contract terms law was extended to apply in business to business transactions. A standard form contract is one prepared by one party to the contract and offered on a take it or leave it basis.
The Australian Competition and Consumer Commission (ACCC) has indicated they intend to enforce the new law in a campaign to ensure businesses have taken steps to comply with the unfair contracts terms legislation. It is noteworthy that under the relevant law, a consumer contract is presumed to be a standard form contract unless the business which relies on the term proves otherwise.
Before 12 November 2016 the unfair contract terms regime applied only to standard form consumer contracts where an individual contracted for personal, domestic and household purposes, including for financial services and products. Now the regime also extends to apply to standard form contracts where one party to the contract has less than 20 employees and the upfront price payable under the contract is less than $300,000 (or $1 million if the contract term is more than 12 months).
The new law allows unfair contract terms to be declared void. Therefore, any business that uses standard form contracts in its dealings with other businesses should consider fairness in the way that the regime demands.
By the Australian Consumer Law’s reach beyond the original consumer purpose, the Government has significantly widened the scope of the legislation. For business to business transactions, effectively small businesses are better protected than big business, because small businesses receive statutory protection, albeit only for lesser value standard form transactions.
One of the aims of the new legislation was to address a small businesses complaint of disadvantage in lower value transactions where they effectively lacked access to legal advice. More particularly, small business feared they were missing out on commercial opportunities, insofar as small businesses lacked the confidence to negotiate out of unfavourable terms in standard form contracts.
Some examples of potentially unfair contract terms are clauses that give a party the right to unilaterally increase its prices during the term of the contract, or automatic roll-over of contract periods, or clauses that allow forfeiture of a deposit where the supplier has not met its obligations, or that limit liability for loss regardless of negligence in causing the relevant damage, certain franchise agreement terms, certain liquidated damages clauses and certain indemnity clauses.
At the Chamber we hope that the widened scope of the legislation will further assist small business to compete successfully with their larger business counterparts. If you suspect that you are using a standard form contract that may be unfair or that a term in a contract presented to you is unfair, talk to a lawyer, or contact the ACCC.