Unfair terms for standard form contracts are now in force
On 12 November, 2016 new legislation came into effect which aims to protect small businesses from unfair terms in business-to-business standard form contracts.
This new legislation extends the operation of the existing unfair contracts provisions to include small businesses. The new provisions allow the courts to strike out any terms in contracts that are held to be unfair.
The legislation applies to standard form contracts as follows:
- contracts entered into or renewed on or after 12 November 2016;
- where contracts are varied on or after 12 November 2016, the law will apply to the varied terms; and,
- contracts between businesses where one business employs less than 20 people and the contract is worth up to $300,000 in a single year or $1 million if the contract runs for more than one (1) years.
The effect of the new legislation is to protect business that are in a weaker bargaining position and who often find themselves in a ‘take it or leave it’ situation. Some examples of unfair contract terms are set out in the legislation and they include:
- terms that enable one party (but not another) to avoid or limit their obligations under a contract;
- terms that enable one party (but not another) to terminate a contract;
- terms that penalise one party (but not another) for breaching or terminating a contract; and,
- terms that enable one party (but not another) to vary the terms of the contract.
Breach of these provisions could not only land you in Court as a Defendant but you could also be on the receiving end of an ACCC enquiry into your business practice. If a Court finds that a particular term in a contract is unfair then that term will be held to be void.
In a recent case the Federal Court of Australia declared that an internet service provider’s standard terms and conditions were unfair. Those terms had the effect of:
- enabling the service provider to unilaterally vary the price under the existing contract without giving notice;
- requiring the consumer to indemnify the service provider without limitation; and,
- enabling the service provider to unilaterally terminate the contract without cause or reason.
A voided term in a Contract has the potential to substantially alter the contractual relationship between parties as the rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term. Some other orders that can be enforced against an offending party are an award for damages as well as an injunction in serious cases.
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