Massive changes affecting all businesses
As of today, Thursday 9 November, 2023, amendments to the Unfair Contract Terms for Small Businesses regime kick in, making it illegal to enter into, or rely upon, unfair terms in a standard form ‘small business contract’.
Who this affects
This will affect all “standard form” contracts for:
Supply of goods or services – e.g. trade/credit terms; engagement agreements; PO Terms; hire agreements; independent contractor agreements (but not employment contracts); and
Grants in land – e.g. leases, sale contracts, licenses;
where at least one of the parties to the contract:
Employs fewer than 100 persons; OR
The party’s turnover in the last year prior to the Contract is less than $10 million.
Unfortunately, you are effectively ‘guilty until proven innocent’ as there is a starting presumption that a contract is ‘standard form’ unless proven otherwise.
In determining whether or not a contract is a “standard form” contract, the Court will consider certain matters including whether:
whether one party has all or most of the bargaining power;
whether The Contract was prepared by one party before any discussion occurred;
another party was, in effect, required either to accept or reject the terms;
another party was given an effective opportunity to negotiate;
the terms take into account the specific characteristics of another party or the particular transaction; and
the party has used the same or similar contract before (including the number of times previously used).
A contract can still be a ‘standard form’ contract even if the other party is given the opportunity to negotiate minor or insubstantial changes, select from a range of options or negotiate the terms of another contract.
It applies to Contracts entered into after 9 November, 2023, but also those varied after 9 November, 2023.
If you do not comply…
Large fines apply for a contravention including up to:
For an individual - $2.5 million;
For a corporation – the greater of $50 million, 3x the value of the benefit from the contravention or (if benefit cannot be determined) 30% of adjusted turnover during the breach turnover period.
The Court can also impose a range of other remedies, including publicity orders and disqualification orders, and issuing injunctions to stop a person making future contracts relying on the unfair term.
Unfair contract terms
A term will be ‘unfair’ if it:
Would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
Is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term (with a starting presumption that the term is not reasonably necessary); and
Would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon.
Some practical examples of unfair contract terms could be:
Terms which permit one party to do something, but not the other (such as terminate the contract, vary the contract, vary the price);
Broad exclusion or limitation of liability provisions;
Imposing excessive early exit fees or liquidated damages;
Broad indemnities – especially if favouring one party only;
Exclusivity terms;
Non-disparagement clauses;
Entire agreement clauses;
….and the list goes on.
A number of businesses have already been subject to Court proceedings under the previous laws, including Uber Eats, JJ Richards, TPG, Employsure, Maxgaming and Fuji Xerox.
What should you do?
If you enter into contracts with businesses, then you quickly need to seek advice from an experienced lawyer who is up to date with the changes to:
Identify possible unfair contract terms;
Consider how the unfair term might be removed or mitigated;
Re-draft/update contracts; and
Assist with managing the process of rolling out the new contracts and dispensing with any previous versions in circulation.
It is anticipated that the ACCC will swiftly commence enforcement of the new regime after 9 November, 2023 – there will be no grace period….
Get in touch with our Commercial Law team
Our team of experienced commercial lawyers have recently undertaken advanced training on this area through the Queensland Law Society and are ready to help you get compliant! …It will be cheaper than paying a $50 million fine…!
Director
LLB (Hons) C Dec
Queensland Law Society Accredited Specialist - Business Law