Small Business and Unfair Contract Terms

Overview

Since November 2016, a new law protects small businesses from unfair terms in standard form contracts. The Treasury Legislation Amendment Act 2015, applies to a standard form contract entered into or renewed on or after 12 November 2016, where:

  • It is the supply of goods or services or the sale or grant of an interest in land,
  • At least one of the parties is a small business (employs <20 people), and
  • The upfront price payable under the contract is not more than $300,000 or $1 million if the contract is for more than 12 months.

The legislation also gives examples of terms that could be considered unfair when at least one party in the agreement qualifies as a small business (<20 employees). These examples include terms that:

  • Enable one of the parties, but not another, to avoid or limit their obligations under their contract,
  • Enable one of the parties, but not another, to terminate the contract,
  • Penalise one of the parties, but not another, for breaching or terminating the contract, and/or
  • Enable one of the parties, but not another, to vary the terms of the contract.

It is the responsibility of a Court or Tribunal to decide whether the terms are unfair. When this happens, the term will be voided and the contract no longer binding on either party. Most standard form contracts are covered by this legislation, however, there are a small number of exclusions and exceptions regarding the overall contract, as well as the terms within—some examples include certain insurance contracts, shipping contracts, or terms that define the main subject matter of the contract, all of which are excluded from the Unfair Contract Terms.

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