Unfair Contract Terms

Attention all small business owners – Unfair contract terms legislation – Just over two weeks to go – don’t get caught out

On 1 November 16 2016 the new ‘Unfair Contract Terms’ legislation will commence.  It will impact nearly every small business and you need to be ready for it.

So what’s it all about?  Essentially it applies to standard form contracts for the supply of goods or services where at least one party to the contract is a small business with less than 20 employees and the upfront price payable is less than $300,000 (OR $1 million if the contract is less than 3 years).  These contracts must not contain unfair contract terms.

What is a standard form contract?

It is a contract where the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis.  For example, your terms of trade with your customers or terms applicable to enable a customer to have a credit account with your business.  Other examples are the terms of your quotes issued or supply agreements.  Nearly every business in Australia uses some type of standard form contract.

What is an unfair contract term?

This is decided by a Court but some examples of terms that may be unfair, include:

1.           terms that enable one party (but not another) to avoid or limit their obligations under the contract

2.           terms that enable one party (but not another) to terminate the contract

3.           terms that penalise one party (but not another) for breaching or terminating the contract

4.           terms that enable one party (but not another) to vary the terms of the contract.

If a term is unfair then it will be void.