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You Can Protect Your Business From Unfair Contracts

8 May 2018
Business man holding red balloon about to burst

This is the second bulletin in an ongoing series that looks at how the recent “unfair contract terms” legislation can affect your business.

The takeaways from our first bulletin include the following:

  • since 2016, the law protects small business from “unfair terms” in certain contracts by making such terms illegal;
  • this legislation means that there is now protection for small businesses that are on the receiving end of an unfair term in a contract, and consequences for a small business that seeks to gain an upper hand by relying on an unfair term in a contract; and
  • this legislation is certainly not ‘toothless’, because household names such as Ashley & Martin, Uber, and Lendlease have all been affected.

In this bulletin, we will we look at the type of contracts that are protected by the unfair contract terms legislation.

What contracts are affected?

The unfair contract terms legislation applies to contracts that are both “small business contracts” and “standard form contracts”.
There are a couple of terms to unpack here; don’t be overwhelmed!

What is a small business contract?

In order for a contract to be considered a ‘small business contract’, all of the following criteria must be met:

  1. the contract is for the supply of goods or services, or the sale of land; and
  2. at least one of the parties is a small business (being a business that employs fewer than 20 people, including regular casual employees); and
  3. the upfront price payable under the contract does not exceed either:

a. $300,000; OR
b. if the contract has a duration of more than 12 months, $1,000,000.

When you are determining whether or not a contract is a small business contract, you will first want to consider how many employees there are in your business or the business you contract with, before focusing on what the contract is for, and how much the contract is for.

The “upfront” price can be either in a lump sum or in instalments.

What is a standard form contract?

A standard form contract is a contract that is offered on a ‘take it or leave it’ basis.  This will be the case where one party has little or no opportunity to negotiate the terms of the contract.

As an individual, you will have come across standard form contracts.  The gym industry and the motor vehicle rental industry mostly use this type of contract.

If there is a dispute about whether or not a contract is a standard form contract, a Court will consider things such as:

  • whether one of the parties has all or most of the bargaining power;
  • whether the contract was prepared by one party before any discussion about the contract occurred between the parties; and
  • whether the terms of the contract take into account the specific characteristics of the parties.

So what does this all mean?

The key thing to remember is that a contract must be both a small business contract and a standard form contract in order for the unfair contracts terms legislation to apply.

This means that if, for instance, a certain 12 month contract is shown to be a standard form contract, but the price payable under the contract is say $2,000,000, a small business will not be protected from any unfair terms in that contract.

Now that you are equipped to identify which of your contracts are affected by the unfair contract terms legislation, in our next bulletin we will discuss what makes a term ‘unfair’.

 

This bulletin has been prepared by Hicksons Lawyers (“Hicksons”) for ASR Underwriting Agencies (“ASR”). Neither Hicksons nor ASR make any warranties or representations about this bulletin. Neither Hicksons nor ASR are responsible to you or anyone else for any direct or consequential loss suffered in connection with the use of this bulletin. Hicksons and ASR exclude, to the extent permitted by law, any liability which may arise as a result of the use of this bulletin.

This bulletin is not legal advice. If you want legal advice you must seek specific legal advice tailored to your circumstances. This bulletin should be viewed as current only at the time of first publication.

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