Last week we mentioned the upcoming commencement of a new law to protect small business contracts from unfair terms. We have provided an overview of the law and who it applies to, this time we want to discuss what an unfair contract term is, whether only the ACCC can bring a claim to court, some examples of unfair contract terms and the importance of businesses learning about the changes now. As the amending legislation adds “small business contract” to sections of the Competition Consumer Act 2010 (Cth) where “consumer contract” is mentioned, it makes for easy understanding of the tests that the court will use to determine whether a term is unfair.
An unfair contract term will be where:
-it causes a significant imbalance; and
– is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the terms; and
– causes any detriment to the consumer or small business.
While the court can take into account any matters that it thinks relevant, it must take into account the extent to which the term is transparent and consider the contract as a whole. Reading the contract as a whole is particularly important as a term may not be deemed unfair when considered against other sections of the contract. In relation to “transparent”, the legislation states that a term is transparent if the term is:
-expressed in reasonably plain language; and
-presented clearly; and
-readily available to any party affected by the term.
Can only the ACCC intervene?
No. If the contract meets the definition of ‘small business contract’, then the party affected may also apply to the court to declare that a term of the contract is unfair. Importantly, the contract will continue to bind the parties if it is capable of operating with the unfair term. It is also important to remember that it is the court, not the ACCC, who determines whether a contract term is unfair.
What remedies are available?
In short, remedies available are declarations, injunctions and damages or compensation orders.
If a contract term is declared by the court as ‘unfair’ then the parties have a statement by the court on the validity of that term, however, if a party continues to enforce the unfair term, the other party can apply to the court for an injunction to prevent the unfair term being relied on. Damages and compensation orders are also available once a contract term has been declared as being ‘unfair’.
Below are some examples of terms that the legislation and the courts consider to be unfair:
-Right for one party to vary the contract without the permission of the other party.
-Early termination fees
-Limited/no liability – incidents within business’ responsibility or control should not be excluded.
-Right to terminate agreement with no cause – even if both sides have the right the small business will be adversely affected.
-Liquidated damages – what are the circumstances surrounding the imposition of the damages, how much are they? And do they accurately and fairly reflect the damage that they are attributed to?
-Wide indemnities – clauses where the larger business requires the smaller business to indemnify the large business for any damage, even if they contribute to it or cause it.
Importance of learning about the changes now
It is important to remember that the law changes apply to contracts entered into or renewed from 16 November 2016. This means that if any contracts are up for renewal or potentially being entered into around this time, and the contract would satisfy the definition of small business contract, it would benefit that business greatly to be aware of the above changes while negotiating the small business contract. The good news is that even if a business is unsure whether a contract term is unfair when forming the contract, if it is entered into on or after 16 November 2016, legislation will protect that business from unfair contract terms.
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