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November 2016, the law will apply to the varied terms.
A summary of the new law can be found in our earlier LegalTalk Alert Government enacts unfair contract
terms legislation to protect small business dated 23 October 2015.
To recap, contracts covered by the new law include those between businesses where:
one of the businesses employs less than 20 people, and
the contract is worth up to $300,000 in a single year, or
$1 million if the contract runs for more than 12 months.
A term will be unfair if it causes a significant imbalance in the parties' rights and obligations under the
contract, is not reasonably necessary to protect the legitimate interests of the party who would benefit
from the term, and would cause detriment to a party if it were relied on. The law sets out examples of
contract terms that may be unfair, including:
terms that enable one party (but not another) to avoid or limit their obligations under the
contract
terms that enable one party (but not another) to terminate the contract
terms that penalise one party (but not another) for breaching or terminating the contract
terms that enable one party (but not another) to vary the terms of the contract.
Only a court or tribunal (not the ACCC) can decide that a term is unfair. If a court or tribunal finds that a
term is unfair, the term will be void – i.e. it is not binding on the parties. The rest of the contract will
continue to bind the parties to the extent it is capable of operating without the unfair term.
ACCC Report on potentially unfair terms
The ACCC Report details common terms of concern identified by the ACCC following its review of 46
contracts in seven industries, including advertising, telecommunications, retail leasing, independent
contracting, franchising, waste management, and agriculture. After identifying a range of contract terms
of concern, the ACCC engaged with businesses about amending or removing the problematic terms,
resulting in a number of businesses making changes to their small business standard form contracts.
The ACCC identified that the three most common terms likely to cause concern were terms that allow the
contract provider:
to unilaterally vary all terms (or at least those that have a significant bearing on the contractual
arrangement, or which could cause detriment if varied) in an unconstrained manner
potentially broad and unreasonable powers to protect themselves against loss or damage at the
expense of the small business by imposing broad indemnities or excessive limit on their liabilities
an unreasonable ability to cancel or end an agreement as it suits them.
Interestingly, some of the other terms identified by the ACCC as being potentially unfair may come as a
more of a surprise to some businesses, including:
entire agreement clauses which state that the contract supersedes all previous agreements,
undertakings and communications. The ACCC was concerned that such clauses could mislead a
small business where they may have additional rights at law, e.g. based on pre-contractual
representations made by the larger business
automatic renewal clauses, e.g. allowing the agreement to be renewed every year on current
terms. While automatic renewal clauses are not necessarily unfair, the ACCC considered that they
could be of concern if they are not adequately disclosed, if no notice is provided that a contract is
about to renew, if the supplier can change the cut-off date for cancellation of the renewal, or if the
customer will incur large early termination charges if they cancel the contract after renewal.