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Are Unfair Contracts Destabilising Your Business?

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Are Unfair Contracts Destabilising Your Business?

Before signing or renewing a contract, spare a few moments to consider the changes made to our Australian Consumer Laws and how they might impact on your small business. Now I know Contract Law can’t compete with the shiny worlds of Netflix and football, but stick with me, and I’ll try to make it worth your while.

The changes I’m referring to were made in November 2016 with the aim of protecting small businesses from unfair contracts. The new rules apply to ‘standard form’ contracts. These are documents that are presented to you to sign without you having had any say in the key terms. Contracts of this nature create a distinct imbalance in power between the supplier and the consumer and that’s what the changes set out to fix.

What contracts are covered?

Contracts:

  • for the supply of goods or services or the transfer of an interest in land,
  • where at least one of the parties is a small business,
  • up to $300,000 in value (or more if the period exceeds 12 months) and
  • entered, varied or renewed since 12 November 2016.

What sort of terms are unfair?

The legislation provides a comprehensive guide; however, terms are generally considered unfair if they create an imbalance in power. This might take the form of enabling one party (but not the other) to vary or terminate the contract. Or it might impose a penalty on one party (but not the other) if it breaches or terminates the contract.

What types of contracts are excluded from these provisions?

Only a few.

  • A contract of marine salvage or towage,
  • The hire or lease of a ship, or
  • A contract for the carriage of goods by ship.

The ACCC has prepared 10 straight forward examples of unfair terms, and you can read them HERE to get a feel for how the rules are applied.

This is good news for your business as a consumer but think about the contracts you use as a supplier. Are they fair? Or do all the critical terms favour you and penalise the other party?

Why is this important?

Two reasons.

  1. The whole purpose of a contractual agreement is to clearly state what each party is counting on the other to do (or not do). It provides a degree of certainty, and it’s something you should be able to rely on. But if you’re the supplier and the terms in your contracts are unfair, you won’t be able to enforce them. If a court or tribunal find the terms in your contracts to be unfair, they’ll be declared void. And depending on how that impacts on the overall agreement, you may find yourself facing a significant financial loss.
  2. Contracts of supply can make a substantial difference to the value of an enterprise, so if you are buying or selling a business – make sure the cornerstone contracts are actually worth the paper they’re written on.

Once you’ve identified your standard contracts that might be affected, talk to your lawyer about tweaking the terms to make sure they are both fair and reliable. You can also save yourself some time (and money) by reading the FAQ’s on the ACCC website before you attend an appointment. Or if you’re one of the select few who enjoy reading legislation, you can find the relevant sections in Schedule 2, Chapter 2, Part 2-3 of the Competition and Consumer Act 2010.

That’s it. We’re done. There is, of course, more information available online and always remember that a 600-word article can never take the place of personalised legal advice.

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