Will your contracts meet the new unfair contract laws?
In just over 8 weeks, amendments to the Australian Consumer Law will take affect and will open the field for certain contractual terms to be challenged by parties negatively affected by standard form contracts or if a party to the contract is a small business.
What contracts does this apply to?
The new laws apply to ‘standard form contracts’ as well as ‘small business contracts’.
Unfortunately, the Australian Consumer Law doesn’t define what a ‘standard form contract’ is. However, in general terms, it is any contract that is provided on a ‘take it or leave it’ basis that is prepared by one party without any input from the other party and which is not open for negotiation.
A ‘small business contract’ is any contract where:
The contract is for the supply of goods or services (such as contracting services);
At least one party is a small business (with less than 20 employees); and
The contract price is under:
a. $300,000.00 if the contract period is less than one year; or
b. $1 Million if the contract period is more than one year.
An example of a small business contract is where a builder has issued a plumber with a subcontract to carry out plumbing works for $50,000.00 and the plumber is a family run business with 6 employees.
From this, it can be seen that a large number of contractors will fall within either of these definitions and the industry will be affected by the new Australian Consumer Law.
How does it affect me?
If you use either a standard form contract or you fall within the definition for a small business contract then the contractual terms are open to be challenged if they are unfair.
A contract term is unfair if:
It would cause a significant imbalance in the parties’ rights and obligations under the contract; and
It is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Examples of unfair contract terms could include:
termination for convenience clauses;
clauses that act as time bars for making certain claims (such as for seeking an extension of time) where the time for providing notice is too short; and
clauses that limits one party’s right to sue the other party.
If a term is considered to be unfair than it can be declared void and will no longer apply to the contractual relationship.
What should I do?
We recommend that you review your contracts before 12 November 2016 to ensure that they are enforceable and that you don’t get caught out. This would also be a good time to discuss how you can go about negotiating contract terms to help limit your risk and to better protect yourself.
We can review and amend your contracts or draft new contracts as well as provide you with advice on best practises in the lead up to entering into contracts as well as with contract administration.
If you’d like to discuss any aspect of this discussion paper, the new unfair contract laws or any other matter affecting your business, please contact us.