Many businesses often deal with standard form contracts and small business contracts in the course of their everyday business. However, businesses should remain mindful that there are protections against drafting unfair contract terms into standard form contracts or small business contracts. A failure to consider these protections when drafting contracts can give rise to disputes between contracting parties and may lead to significant penalties.
Changes in the Law
In 2016, the Australian Consumer Law (ACL) was amended to extend the protections contained in parts 2 and 3 of the ACL to small business contracts. The current provisions apply to all contracts entered into or renewed on or after 12 November 2016. However, this legislation has been the subject of much criticism, as it is difficult for businesses to understand, does not deter businesses from drafting unfair contract terms and does not provide adequate incentives for businesses to ensure their standard form contracts do not contain unfair contract terms.
In early 2021, a draft amended legislation relating to the unfair contract term protections was published. The draft legislation proposes to implement a number of changes that is intended to strengthen the protections against unfair contract terms. The proposed legislation has now been passed by both Houses of Parliament.
The proposed legislation proposes to:
- expand the definition of small business contracts, meaning that more businesses will be protected under this new legislation;
- introduces a penalty that may be imposed if a person proposes, applies, relies or purports to apply or rely on an unfair contract term; and
- introduces a presumption that a term is unfair if the same term, or a term that is similar in effect, has been declared unfair in previous proceedings.
The incoming changes offer additional protections and extend the current protections to protect small businesses from unfair contract terms.
What should businesses do?
When entering into contracts, small businesses should remain mindful of the protections they are afforded against unfair contract terms under the ACL. Unfair contract term disputes may relate to:
- unequal bargaining power under the terms of the contract;
- unilateral rights under a contract; and / or
- lack of opportunity to negotiate contractual terms prior to entering into a contract.
How can Marsdens help you?
If you believe you have a dispute regarding unfair contract terms, unequal bargaining power or lack of opportunity to negotiate, Marsdens can help you. We can assist in considering whether a contract is fair by reference to the ACL and the incoming changes.
If you are a business who regularly uses standard form contracts or small business contracts, and have a dispute relating to unfair contract terms or any concerns relating to unfair contract terms, please contact Aaran Johnson or Bharath Balasubramanian to discuss how Marsdens can assist you.
The contents of this publication is for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.