Are you being fair? Are they being unfair?
Implementation of small business protections under the unfair contract provisions of the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act (ASIC Act) begin on 12 November 2016
It has been almost a year since the Federal Government passed legislation amending the ACL and the ASIC Act extending the unfair contract terms to small businesses. But as they say, a year is a long time in politics, and this item may have since slipped off your company’s agenda.
So, if you are:
- A small business that regularly signs standard form contracts (contracts where you are not allowed or there is minimal opportunity) to negotiate terms; or
- A small business that relies on offering standard form contracts as part of operating your business
your rights and obligations may change for standard form contracts entered into on 12 November 2016 onwards.
Does this apply to my business?
A small business
Small businesses are businesses that employ less than 20 people (casuals are only included if they are employed on a regular or systematic basis). Importantly, this includes independent contractors.
Standard form, small business contract
Contracts to which the legislation apply must be a standard form contract – that is, a contract usually prepared by one party and where the other party has little or no opportunity to seek amendments, often on a “take it or leave it” basis. It is also only applicable if:
- the upfront price payable under the contract does not exceed $300,000; or
- the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
What does “unfair” mean?
Unfortunately, this is discretionary. However, courts will look at things such as whether the term would cause significant imbalances in the parties’ rights, whether the term is reasonably necessary to protect interests of the protected party, the detriment caused to the other party if the term was relied upon, the transparency of the term and the contract as a whole.
The ACL gives further examples of factors that courts will take into consideration. However, each case will turn on its own facts and on the specific contractual scenario.
Ferme & Ors v Kimberley Discovery Cruises Pty Ltd  FCCA 2384.
This recent Federal Circuit Court case found that a term of a cruise ship contract that disentitled passengers to any compensation or refund in circumstances of an unexpected event or prevailing inclement weather was held to be unfair.
ACCC v CLA Trading Pty Ltd  FCA 377 (Europcar Rental Agreement case)
In this case the Federal Court found that the following terms:
- a term which required a hirer to pay Europcar up to the amount of the Damage Liability Fee (of $3,650) irrespective of fault; and
- a term which removed the limitation of liability inherent in the Damage Liability Fee if the hirer breached the rental agreement, regardless of the triviality of the breach or the link between the breach and the relevant loss or damage,
were unfair and therefore void.
Time to check your terms
If a dispute occurs and you are relying on a standard form contract, an unfair clause may be declared void.
Depending on how your terms are drafted, an unfair clause may make the whole contract unenforceable.
It follows, that if your business relies on standard form contracts and regularly contracts with individuals or small businesses, you should seek advice on whether your standard form contracts require amendment to try to ensure compliance with the new unfair contract terms regime.
Clement Lo, Associate
(02) 9318 6420
Peter English, Director
(02) 9318 6411