Small business owners need to be aware of recent changes to commercial law in Australia, with the House of Representatives recently passing amendments to the Competition and Consumer Act 2010 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) that apply directly to small business.
These amendments extend to small businesses, existing protections that were given to consumers in 2010, when dealing with medium and large businesses in regards to standard commercial arrangements.
These new laws now provide the courts with the power to declare that a term of a standard form small business contract is void where it is found to be unfair to the consumer.
What this means is that all small business owners need to review the standard commercial contracts provided to their customers to ensure the terms of the contract meet these new guidelines and are not considered unfair in their construction.
Where a contract term is found to be unfair the court will void either this specific portion of a contract, or where the contract cannot operate without this section, the whole contract can be declared void. Any person who is a party to a small business contract can make an application to void the contract, as well as the ACCC, or state regulators.
What is a small business contract?
A contract will be considered a small business contract if:
- At the time the contract is entered into between the parties, at least one party to the contract is a business that employs fewer than 20 employees;
- Either of the following apply;
- The amount payable under the contract is not more than $300,000.00, irrespective of the term of the contract; or
- Where the contract is greater than 12 months the amount payable is more than $300,000.00, but less than $1,000,000.00.
What is a standard form contract?
A standard form contract, to which this new legislation applies to small business owners may take the form of one of the following:
- Where one party prepares the contract prior to any discussions between the parties;
- Where one party was required to either accept, or reject the contract, with no opportunity to discuss amendments or alterations; or
- Where the contract is broad in nature and its terms not specific to one party, or to the particular transaction.
When is a term unfair?
A term of the contract may be declared unfair by the court where:
- It would cause significant imbalance to the rights and obligations of the parties to the contract;
- It is not reasonably necessary to protect the legitimate interests of the party who is advantaged by the term; and
- It would cause a detriment, whether financial or otherwise, to a party to the contract if the term was applied or relied upon in entering into the contract.
Having a contract voided by a court, either partially, or in full, can obviously have serious repercussions for small businesses and lead to loss of income. Accordingly it is import that as a small business owner you take the time to review your contracts to ensure that the terms they include could not be considered unfair.