Unfair terms in business to business contracts

Unfair terms in business to business contracts

Australian competition and consumer law provides protection against unfair contract terms in standard form contracts, making them void. Standard form contracts are not legislatively defined, but generally accepted as meaning prepared by one party where the other party has little to no power to negotiate contract terms.

According to the Australian Consumer Law (ACL), an unfair term is a term that:

  1. creates a significant imbalance in the parties’ rights and obligations under the contract;
  2. is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
  3. could cause detriment, whether financial or otherwise, if the term was to be applied or relied on.

Traditionally these provisions acted to protect the consumer, however this was extended to include small business contracts entered or renewed on or after 12 November 2016. This means business to business standard form contracts such as those for the supply of a goods or services are also covered by this provision.

The ACL defines a small business contract in the following way:

  1. at least one party is a small business (employees no more than 20 people, including casual employees who are employed on a regular and systematic basis);
  2. up front payment under the contract of no more than $300,000 or $1,000,000 if more than 12 months; and
  3. for the supply of goods or services, or the sale or grant of an interest in land.

If you have any concerns regarding standard form contracts, provided by or to you, do not hesitate to contact me at rosalyn@gladwinlegal.com.au or give me a call on 1300 033 934 for a no-obligation quote.

Source: ACCC