The Competition and Consumer Act and the Australian Securities and Investment Commission Act have been amended to extend the protections that consumers had against unfair contracts to small businesses.

What contracts do these amendments apply to?

They apply to most standard form contracts for the supply of goods or services or the grant of an interest in land:

1. where one of the parties is  a business that has fewer than 20 permanent employees
2. where the upfront payment is not more than $300,000 or is not more than $1,000,000 for a contract that runs for more than 12 months
3. for contracts entered into or renewed  on or after 12 November 2016
4. or to contract terms that are varied on or after  12 November 2016.

Standard form contracts are those ones that have little or no scope for negotiation.  For example phone or internet service contracts or power supply contracts; where you either accept the terms or go elsewhere.

What does this mean for the parties?

If a term in a standard contract is determined to be unfair by a court, it can be voided and the parties will not be bound by it. A court will consider the terms in the context of the entire contract.  But, generally speaking, to be considered fair, terms must:

1. be reasonably necessary to protect the legitimate interests of the party advantaged by it
2. be balanced in the rights and obligations of the parties
3. not cause financial or other detriment to the small business
4. be easily read and understood
5. not be too legal, complex or technical making them difficult for the other party to understand them
6. be written into the body of the contract, not hidden in an annexure.

Contract terms may be unfair if they prejudice one party, for example:

1. only one of the parties’ has obligations under the contract, or the other party’s obligations are limited
2. one party cannot terminate the agreement
3. only one party is penalised for breaching or terminating the agreement
4. only one party may vary the terms.

What should you do if your small business is entering into a “Standard Contract” with another business?

1)      Like any contract you enter into, read it and understand what you are getting into. Some of the questions to ask are:

i)        Does your business have the same rights as far as terminating the contract that the other party have?

ii)       Will it be penalised for early termination of the contract?

iii)     Can your business vary the terms? Can the other party? Will the variations mean the contract is unfair on your company?

iv)     Is there an automatic renewal at the end of the term that does not require your business to consent to?

2)      Raise your concerns with the other company , including the concern that the terms may breach the Competition and Consumer Act because the terms are unfair.

3)      Seek legal advice.

4)      Lodge a complaint with the ACCC or State Fair Trade Regulator.

5)      Look for a more ethical company to do business with.

If your company relies on standard form contracts in its dealings with consumers and small business, it should review them to ensure that the company is dealing fairly with its customers and suppliers and is not likely to breach the law.

This is intended to be general advice and  should not be taken as legal advice as each situation needs to be taken in context.