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Unfair Contract Terms: proposed additional protections to Small Business

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Small Businesses (less than 20 employees) may soon have protection against the imposition of unfair terms within new standard form contracts if proposed legislation is adopted.

Protection against an unfair contract term within a standard form contract has been in existence for certain consumer contracts since the Australian Consumer Laws (ACL) were introduced in 2010.

Small Businesses does already have some protections against unfair or unconscionable under the provisions of the Competition and Consumer Act 2010 (Cth), however, these new provisions will provide an extra layer of protection.

New Amendments

The proposed new amendments simplify part of the process by providing a clear path to have unfair terms removed from a contract. Here, protections that are currently available to consumers in relation to unfair contract terms will also become available to Small Business.

If passed, Small Business will be protected from unfair contract terms in new standard form contracts such as those which:

a. permit unilateral avoidance or limitation of the performance of the contract;
b. permit unilateral penalisation of one party but not another for breach or termination; or
c. permit unilateral termination, variation, renewal or refusal to renew, or otherwise limiting the rights of one party, but not the other (among other unfair terms).

Application of laws

The proposed amendments relate to two pieces of business related legislation, the Australian Securities Investment Commission Act 2001 (ASIC Act) for financial services, and the Competition and Consumer Act 2010 (Competition and Consumer Act) for the supply of goods and services under the ACL.

Changes to the ASIC Act apply only to standard form contracts for
financial products, or for the supply, or possible supply of services that are
financial services. Requests for the removal of unfair terms under the ASIC
Act may be brought by a Small Business which is a party to the contract, or
by ASIC.

Changes to the ACL apply to standard form contracts for the supply of goods or services, or a sale or grant of an interest in land. Requests for the removal of unfair terms under the ACL may be brought by a Small Business which is party to the contract, or by the ACCC.

These protections will only apply to standard form contracts entered into after the laws take effect. They are not intended to apply retrospectively, however where a contract is renewed or the potentially unfair term is varied after that laws come into effect, the laws would then apply.

The protections are aimed to apply where, at the time of entering into the contract, at least one party falls within the definition of a small business being where either:

shaun-creighton

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