Unjust contract legislation extended to small business

The Australian government has decided to extend the operation of unjust contract term protections to small business.

An unfair contract term is defined under s 24 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law), as a term which:

“Would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on”.

According to the Australian Government’s, Decision Regulation Impact Statement, a research survey revealed that currently, 65% of small businesses believe they do not have the resources to negotiate standard form contracts and 60% say they have been exposed to unfair contract terms. 

Under the proposed new regime, the protection afforded to small businesses is that unfair contract terms can now be declared void. Section 12BF of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) and Part 2 to 3 of the Australian Consumer Law, will be amended to incorporate these changes. The result will be that unjust contract term protections will apply to small businesses, with less than 20 employees, which enter into small business contracts. A small business contract is a contract which:

“At the time it is entered into, at least one party is a small business, and the upfront price payable under the contract does not exceed either $100,000, or $250,000 if its duration is more than 12 months”.

However, the Commonwealth Minister will be able to exclude, in particular circumstances, a small business from protection.   

The amendments aim to overcome the susceptibility of small business to suffering detriment arising from an unfair term/s in a standard form contract whilst also ensuring that they continue to exercise due diligence when entering into standard form contracts for high value.   

Only contracts entered into on, or after, the date the new law is enforced, will be covered by the unfair term protections. 

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