Expert Advice

B2B contracts – unfair contract terms

B2B Editor11 November 2016

B2B contracts – unfair contract terms

If you are reading this B2B article, it is likely you are interested in B2B transactions.

The Australian Consumer Laws (the ACL) protect consumers from unfair contract terms in standard form contracts. With effect from 12 November 2016 these protections will extend to B2B transactions for small business. These extensions will allow for unfair contract terms in small business contracts to be declared void.

These protections will apply to contracts entered into, renewed, or varied, on or after 12 November 2016, and where: least one party is a small business, meaning they employ fewer than 20 people at the time of entering into the contract;

ii. the upfront price payable under the contract does not exceed:

  • $300,000; or
  • $1,000,000, if the contract is for more than 12 months; and

iii. subject to some limitations, the contract is a “standard form” contract.

What is a “standard form contract”?
A standard form contract is generally the same for all customers and is offered on a “take it or leave it” basis, with the party providing the contract generally having the stronger bargaining position.
What is an “unfair term”?
Whether a contract term is “unfair” is ultimately a decision for a Court. In making this assessment, a Court will consider the extent to which the term is transparent, together with the effect of the contract as a whole. A Court may also consider other matters, such as:

  • would the term cause a significant imbalance in the parties’ rights and obligations arising under the contract. Examples include giving one but not both parties a right to terminate or vary the contract; or
  • is the term reasonably necessary to protect the legitimate interests of the party that would benefit from its inclusion; or
  • would the term cause financial or other detriment (e.g. delay) to a small business if it were to be applied, or relied on?

A term might not be considered transparent if it is hidden in the fine print or schedules, or terms that are phrased in overly legal, complex or technical language.

How can we assist?
From 12 November 2016, many standard form contracts will be unenforceable because they are imbalanced towards the party that prepared the contract. Provisions such as warranties, liability caps and indemnities are important risk management tools for business, but may be deemed unfair in a B2B transaction.

Contact Moulis Legal to review your standard term contracts to identify any provisions that may be in breach of the new unfair contract laws. We would be pleased to provide you with a report on the terms that are a problem, how those terms can be amended, and draft alternative provisions that are more likely to be enforceable.

Small business contracts are less likely to be deemed unfair if businesses are prepared to negotiate provisions. Our team can assist in identifying and negotiating contract provisions that are likely to be deemed unfair.

Shaun Creighton
Moulis Legal – Commercial + International
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