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Lawyers for local government

LG Alert – Unfair Contract Terms: What you need to know (October 25th, 2016)

On 12 November 2016 amendments to the below Acts, which amendments are intended to protect small businesses from unfair terms in contracts, will commence:

  • Australian Securities and Investment Commission Act 2001;
  • Competition and Consumer Act 2010 (including the Australian Consumer Law).

What contracts will these protections apply to?

The amendments operate in respect of contracts entered into by councils and subsidiaries with small businesses where the contract concerns trade and commerce matters and other ‘for profit’ business activities where:

  • the ‘upfront price’ payable under the contract does not exceed $300,000; or
  • if the contract has a duration of more than 12 months and the ‘upfront price’ payable under the contract is not more than $1,000,000.

The amendments do not affect contracts arising from regulatory or legislative functions carried out in the interests of the community – for instance, entering into infrastructure agreements, bonding agreements, leases and licences to community groups and the like.

What is a small business?

A small business is any business that employs less than 20 people, including casual employees.

What is the ‘upfront price’?

The upfront price is all payments to be provided for the relevant supply, sale or grant under the contract which are clearly disclosed at or before the time that the contract is executed.

What do the amendments achieve?

The amendments provide small businesses with a cause of action against terms in standard form contracts which are, as a matter of law, ‘unfair’.

Unfair terms are defined to include terms that:

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

Examples of terms that may fall within this definition include terms that:

  • include automatic rollover extensions and/or non-negotiable extensions in respect of the goods/services provided by the small business;
  • allow one party to unilaterally amend or vary a contract against the small business;
  • limit or otherwise affect one party’s obligations under the contract that are owed to the small business;
  • limit or otherwise affect the ability of a small business to seek remedies or redress for a breach by another party;
  • limit or otherwise affect the ability of a small business to vary contract terms; and/or
  • limit or restrict the ability of a small business to terminate the contract.

What is the remedy for unfair terms?

Small businesses will have the ability to take legal action in respect of unfair terms. If a contract term is found to be unfair by a Court, it can be declared void and of no effect.  The term will effectively be ‘removed’ from the contract so that it cannot be enforced against the small business.

What to do next?

If your council or subsidiary is engaging in business activities, its standard form contracts must be compliant with the amendments prior to 12 November 2016.

All contracts entered into from this date are caught by the above amendments and any contract containing an unfair term may be challenged by any small business party to that contract.

If you require assistance with ensuring that your contracts comply with the amendments, call Michael Kelledy on 8113 7103 or Victoria Shute on 8113 7104.