3 Things Every Business Owner Should Know About The New 'Unfair Contract' Laws

Breaking news: That’s unfair! is now legitimate grounds to void a contract.

Want to know what the new Unfair Contract laws are all about? Read on. We’ve got your business behind, covered.

As of 12 November 2016, the laws around new contracts, renewed existing contracts, and terms varied within existing contracts have been updated under the Australian Consumer Law.

And these new laws state that contracts are void if deemed ‘unfair’. (We’ll get into definitions, later).

First, it’s important to know…

Yes – if you’re dealing with small business contracts (including “standard form” contracts).

Wait, what’s a small business contract again?

Under the new laws, it’s defined as a contract for a supply of goods or services, or a sale or grant of an interest in land where:

• At least one party to the contract is a business that employs fewer than 20 persons (including casual employees who are employed on a regular and systematic basis), AND
• the agreed contract price does not exceed $300,000 for contracts that last up to 12 months, or $1 million if the contract is for more than 12 months.

A ‘standard form contract’ is a contract where:

• one party has all or most of the bargaining power relating to the transaction; and/or
• the contract was offered on a ‘take it or leave it’ basis; and/or
• a party was not given adequate opportunity to negotiate the terms of the contract.

Is that you? If so, you’ll likely be asking…

Under s 24(1) of the Australian Consumer Law, a contract will be unfair if it:

1. Causes a significant imbalance of power;
2. Is not reasonably necessary to protect the legitimate business interests of a party; and
3. Would cause detriment to the small business if it were to apply or rely upon it.

Examples of unfair terms may include:

• Termination and renewal: where only one party has a right to terminate or renew the contract.
• Variation: where only one party can vary the contract (e.g. length of agreement or agreed price) and there’s no option for the other party to terminate the contract if they don’t agree with the variations.
• Penalties and indemnity: where only one party is indemnified against breach, or there are hefty fees for breach or termination of the contract for only one party.
• Limitations: where one party’s right to sue the other is limited.

And the most important part…

If you’ve entered into a standard form contract with an unfair clause, the court will treat the clause as void. That is – as if it never existed at all. Just like that!

However, (and here’s where it gets serious) if the clause is so essential that the rest of the contract can’t operate with it, the court will deem the whole contract void.

In practical terms, this means that any protection or rights you had under the contract will not only be lost, but considered to have never existed at all.

If you use standard form contracts or template contracts consider:

1. Are they balanced?
2. Do you give the other party an opportunity to negotiate the terms?

If the answer is “no” or “not really”, then it’s time to review the terms.

If you’re having trouble getting across the new laws, or aren’t sure whether your contract is “unfair” – get in touch 02 8880 9383 or metis_at_metislaw.com.au.