The Australian Government has had a strong focus on small business recently, as mentioned in our article a few weeks ago. Continuing with this trend, new legislation in 2016 is set to extend unfair contract provisions under Australian Consumer Law (ACL) to cover business-to-business relationships.
The new legislation aims to assist small businesses of fewer than 20 employees, where contract value is under $100,000 (or $250,000 for contracts spanning more than 1 year).
Current unfair contract provisions protect consumers by allowing Courts to declare unfair terms void. However, small businesses have been vulnerable to unfair contract terms, particularly where one business has greater bargaining power and legal expertise than the other.
An unfair contract term is defined as a term that:
- Causes a significant imbalance in the parties’ rights and obligations under the contract;
- Would cause detriment (whether financial or otherwise) to a party if it were to be relied on; and
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term
The court will also consider the contract as a whole as well as the transparency of the contract/terms.
Examples of unfair contract terms could include terms that allow a company in an advantageous position to unilaterally change price or key terms while the contract is on foot.
Businesses engaged in business-to-business contracts are advised to review their standard form contracts to ensure that they will meet these new provisions.