Unfair Contracts Legislation to Extend to Small Businesses from 12 November 2016

Unfair Contracts Legislation to Extend to Small Businesses from 12 November 2016

The new regime

Unfair contracts legislation is now set to apply to small businesses. Pursuant to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) (“Amendment Act”), from 12 November 2016 the unfair contracts regime found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“ACL”) and the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”)[1] will be extended from only protecting consumers to include protection for small businesses.

The updated legislation will provide that:[2]

  1. a term of a consumer contract [3] or small business contract is void if:
      1. the contract is a standard form contract; and
      2. the term is unfair.

 Small business contract

A contract will be a small business contract if:4

  1. the contract is for a supply of goods or services, or sale or grant of an interest in land; and
  2. at the time the contract is entered into, at least one part to the contract is a business that employs fewer than twenty (20) persons; [5] and
  3. either of the following applies:
      1. the upfront price payable under the contract does not exceed $300,000; or
      2. the contract has a duration of more than twelve (12) months and the upfront price payable under the contract does not exceed $1,000,000.

Calculation of employees

In calculating the number of people that a business employs, a head count approach (regardless of an employee’s hours or workload) is used. Casual employees are to be counted only if they are employed on a regular or systemic basis, to account for seasonal variations.[6] This is the approach used in the Fair Work Act 2009 (Cth).[7]

Upfront price payable

“Upfront price payable” means the consideration that is provided, or is to be provided, for the supply under the contract and is disclosed at or before the time the contract is entered into. It does not however include any other consideration that is contingent on the occurrence or non-occurrence of a particular event.[8]

Standard form contract

The legislation provides that a contract will be presumed to be standard form unless the applicant party proves otherwise.[9] In determining whether a contract is standard form or not, the Court must take into account a number of factors (in addition to other factors it deems relevant). [10] Some of these factors include whether one of the parties had all the bargaining power and whether the contract was presented on a ‘take-it-or-leave-it’ basis.

Unfair term

A term will be considered unfair if:[11]

  1. it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  3. it would cause detriment (whether financial or otherwise) to a part if it were to be applied or relied on.

 In determining whether the term fits within this definition of unfair, the Court must take into account the extent to which the term is transparent and the contract as a whole.[12] A term will be considered transparent if it is:

  1. expressed in reasonably plain language;
  2. legible;
  3. presented clearly; and
  4. readily available to any party affected by the term.

Examples of unfair terms include terms that permit unilateral variation of a contract or unilateral termination of the contract.[13]

Applicability of the new legislation

The incoming legislation will only apply to:

  1. new contracts entered into on or after 12 November 2016;
  2. old contracts which are renewed on or after 12 November 2016; or
  3. terms of old contracts which are varied on or after 12 November 2016.

Accordingly, if you believe that you fall within any of these categories and require advice, or believe that you have been subject to an unfair contract term; contact our experienced team at Cronin Litigation Lawyers on (07) 5592 6633 today.


[1] Applying only to issues arising in the financial services sector.

[2] section 23 of the ACL and section 12BF of the ASIC Act.

[3] Pursuant to sections 23(3) of the ACL and 12BF(3) of the ASIC Act, a ‘consumer contract’ is a contract for the supply of goods or services, or the sale or grant of an interest in land, to an individual for personal, domestic or household use or consumption.

[4] Pursuant to sections 23(4) of the ACL and 12BF(4) of the ASIC Act

[5] This threshold was chosen on the basis that it is a commonly used head count measure and has been found by the Australian Bureau of Statistics to provide a good proxy for a small business - Explanatory Memorandum, Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015, p19.

[6] ACL, 23(5) and ASIC Act, 12BF(5).

[7] Explanatory Memorandum, Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015, p12.

[8] ACL, s26(2) and ASIC Act, s12BI(2).

[9] ACL s27 and ASIC Act s12BK.

[10] ACL s27 and ASIC Act s12BK.

[11] Pursuant to section 24(1) of the ACL and section 12BG(1) of the ASIC Act

[12] ACL s24(2) and ASIC Act s12BG(2).

[13] See section 25 of the ACL and section 12BH of the ASIC Act which provide further examples of unfair terms.