New laws on extending unfair contract terms to small business...

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ASIC has recently released an Information Sheet which provides guidance on new laws that extend unfair contract term protections to small businesses entering into standard form contracts.

These new laws amend the Australian Consumer Law (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) and will be enforced from 12 November 2016.

A term in a standard form contract will be unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations under the contract;

  • would cause detriment (whether financial or otherwise) to a party if it were relied on; and

  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term.


For more information on the definition of “small businesses” and a discussion on what constitutes a “standard form contract” please see our previous articles here.

The ASIC Information Sheet provides guidance on how the new laws will impact businesses and outlines ASIC's expectations that businesses will review their standard form contracts prior to 12 November 2016.

What should you do to ensure compliance with the new laws?
Review
ASIC has recommended that businesses should begin a comprehensive review of their standard form contracts, particularly those that are used when contracting with small businesses of less than 20 employees, and identify terms that would potentially breach the new laws.

This process of review should include examining new contracts and also existing contracts which businesses intend to vary or renew as these will also fall within the ambit of the new protections.

ASIC has provided specific examples of contract terms that may be considered unfair under the new laws, these include terms which provide for an automatic rollover of a contract or the right to unilaterally vary a contract may be unfair under the new laws.  Businesses should consider these terms and whether they are required in every instance.

Transparency
According to ASIC, a term is considered to be “transparent” if it is legible, expressed in plain language, is presented clearly and is readily available to any party affected by the term.

Businesses should ensure that all contract terms are transparent. In addition, businesses should consider bringing potentially unfair terms in standard form contracts to the attention of the other side.  While ASIC has identified that transparency may not prevent such terms from being considered unfair, if a business has provided the other party with notice or other information about any onerous terms, there is less scope for finding those terms to be unfair as the other party may be treated as having assumed any risks associated with the term.

Enquiry
There is no requirement under the new laws to notify the other side that your business is likely to be considered a “small business” and fall within the protections of the new laws.

Accordingly, we recommend that businesses actively engage in early stage enquiry to investigate whether the other contracting party has less than 20 employees and would, therefore, be considered a small business under the new laws.  Businesses may also consider creating a separate set of contracts for big businesses and small businesses. 

Authors: Darren Pereira & Sam Berry
Contacts
Melbourne
Dan Pearce, Partner
T: +61 3 9321 9841
E: dan.pearce@holdingredlich.com

Sydney
Darren Pereira, Partner
T: +61 2 8083 0487
E: darren.pereira@holdingredlich.com

Brisbane
Trent Taylor, Partner
T: +61 7 3135 0668
E: trent.taylor@holdingredlich.com


Disclaimer
The information in this Article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.
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