Fresh protections in take it or leave it contracts
THE Unfair Contract Terms provisions of the Australian Consumer Law were extended to protect small businesses from November 12, 2016.
These laws apply to standard form contracts entered into or renewed after that date for the supply of goods or services, or sales and some other dealings with land.
Contracts in place before November 12, 2016 that are renewed ( for example under an option to renew) are subject to this law from the time of renewal.
At least one of the parties to the contract must be a small business employing fewer than 20 people.
The law does not apply where the upfront price payable under the contract is more than $ 300,000, or $ 1,000,000 if the contract is for more than 12 months.
A standard form contract is one that has been prepared by one party to the contract and where the other party has little opportunity to negotiate terms – a “take it or leave it” contract.
Examples include any internet “click to accept” contract, franchise agreements, supply and other distribution contracts, bank mortgage contracts and shopping centre leases.
A term in a contract is unfair if there is an imbalance in negotiating power between the parties and the term is not reasonably required to protect the interests of the party imposing the term.
Terms that set the upfront price payable under the contract, and define what is provided for that price, are not covered by the law.
Few small businesses will want to incur the cost of litigation to find out whether a court considers a contract term unfair.
Large organisations with standard contracts may also be very reticent to test the court’s views on the fairness of their contract terms, as this can affect many more contracts than just theirs.
These laws have the potential to be a game changer in disputes between small and big business.