2 March 2016
From 12 November 2016, a new law will be in effect which will extend the unfair contract term protections to small business contracts.
What contracts will be covered?
The new law will apply to a small business contracts entered into or renewed on or after 12 November 2016. This means that current contracts will still stand, but if the contract is varied or begins on or after 12 November 2016, the new law will apply to the varied contract terms.
The following contracts will be affected:
What is a standard form contract?
A standard form contract is one that has been prepared by one party to the contract and 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, the same Credit Application is normally given to each new customer by goods/services providers and the customer does not always have the opportunity to negotiate individual terms.
The factors relevant in determining whether a contract is a standard form include:
What is an unfair contract term?
Under the Australian Consumer Law (“ACL”) , an unfair term is a term that:
In order for the term to be unfair, it must satisfy all three criteria. The court will look at the contract as a whole to determine whether the term is unfair.
The following are examples of unfair terms:
What are the consequences if a contract contains an unfair term?
If a party to the contract considers a term to the contract is unfair, they can apply to the Federal Court for a declaration that the term is unfair. If the term is considered unfair, then the unfair term will be void. This means the term will be unenforceable and treated as if it did not exist. The contract will only continue to bind the parties if it can operate without the unfair term.
What should you do now?
The law does not take effect until November 2016, so you have time to review your current contracts to determine whether they contain any unfair terms. It will be important to look at any indemnities, releases from liability and termination clauses in your contract.
JHK Legal has vast experience in drafting and reviewing contracts and is able to assist with ensuring your contract complies with these new laws.
For more information, please contact our office and speak with one of our lawyers.
Author: Cassandra Garton, Lawyer
Published: March 2016
 Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015.
 Schedule 2 of the Competition and Consumer Act 2010.