Take the unfair contract law challenge

One of the most significant statutory developments to have occurred to contract law in Australia over the past decade is in force from 12 November this year.

From this date, the 'unfair contract term' regime that currently applies to consumers will be extended to cover certain 'standard form' small business contracts. This will include contracts renewed or varied on, or after, the November date.

TAKE THE QUIZ NOW

The team at Henry Davis York has prepared for clients a quiz to help establish if you have a clear understanding if a contract term will be regarded as fair, unfair or remains in the 'grey area' of the law under the new regime.

 

Test your knowledge and understanding of this important change to contract law.

 

Good luck!

 

What's changing?

The reforms will see the amendment of both the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) to prohibit unfair contract terms in certain small business 'standard form contracts'.   

A key driver of the reforms is the desire to protect small businesses, especially those in situations where they are dealing with larger entities and a perceived unfair advantage may arise.  

In August this year, Australian Competition and Consumer Commission (ACCC) Deputy Chair Dr Michael Schaper issued a timely reminder to industry about the importance of becoming compliant with the reforms. He noted that, during the ACCC's engagement with industry, it appeared many sectors still remained unprepared.

Dr Schaper urged "all businesses that issue standard form contracts to undertake a review of their terms in the lead up to 12 November to ensure that they are compliant with the new laws."

Who is affected?

The reforms are relevant to any entity that uses a standard form contract when entering into a business-to-business transaction. This will include certain public sector entities to the extent that they 'carry on a business'.

Contracts that may be affected include:

  • Supply of goods and services contracts
  • Distribution contracts
  • Consultancy agreements
  • ICT supply contracts
  • Venue hire agreements
  • 'Design and construct' and 'construct only' contracts
  • Commercial leases
  • Contracts for the supply of financial products and services.

To check if the reforms apply to a particular transaction, you can apply the four-step test found below. If you answer 'yes' to all of these questions, then (subject to a small category of exceptions) the reforms will apply to your transaction.

A 'standard form contract' is a contract that is provided by a party on 'a take it, or leave it basis', including where there has not been an opportunity to negotiate its terms.

A 'small business' is one that employs fewer than 20 persons, including casual employees where they are employed on a regular and systematic basis.

What is an 'unfair term'?

An 'unfair term' is a term that:

  • causes a significant imbalance in the parties' rights and obligations under the contract;
  • causes detriment to a party; and
  • is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term.

In determining whether a term is unfair a court may take into account matters it thinks relevant but it must take into account:

  • the extent to which the term is transparent; and
  • the contract as a whole.

A 'transparent term' includes a term that is expressed in reasonably plain language, is legible, presented clearly and readily available to any party affected by the term.

Both the ACCC and ASIC have released publications that provide additional guidance on the application of the reforms and what constitutes an unfair term. Please click here to view the ACCC Information Sheet and here to view the ASIC Information Sheet.

Exclusions

The reforms do not apply to terms that define the main subject matter of contracts or where the term is required by a Commonwealth, State or Territory law. Some other exclusions also apply.

Consequences of non-compliance

If a contract includes an 'unfair term', the court may determine that the term is void and should be struck-out. In addition, reputational damage could arise for the entity that drafted the term, especially if the court case attracts the attention of the media.

How HDY can help

HDY recommends that organisations transacting with small businesses should review their standard form contracts to ensure compliance with the reforms.

We can assist you to:

  • review and update your standard form contracts to identify and remove 'unfair terms';
  • develop separate, stand-alone contract templates for small business contracts;
  • train your staff on compliance with the reforms and, where applicable, how to negotiate terms where they are likely to fall foul of the reforms; and
  • understand the application of the reforms to your business and your contracts.

We are grateful for the assistance provided by Sarah Walters, HDY's Director of Knowledge Services, in preparing this Insight and the unfair contract terms quiz.

Peter Mulligan

I am passionate about the success of the firm's clients and doing everything to ensure we exceed expectations.

Peter Mulligan Partner

Peter is a specialist in all areas of commercial and technology law, with a particular focus on projects involving complex contractual structures and arrangements. He is recognised by his clients and peers as an expert in tendering and procurement.

Peter's clients call upon him to advise on projects involving the acquisition, licensing or supply of large-scale hardware, information technology, telecommunications systems and other goods and services. His expertise includes outsourcing, managed services and bespoke contractual arrangements.

In the government sector, Peter is an expert in State and Federal procurement, advising government departments and agencies on procurement reform, tendering, legislative compliance, delegations of authority and agency restructures.

One of Peter's career highlights has been acting for Global Television (now NEP Australia), on its agreement to design, install and operate the international broadcast centre for the 2014 Commonwealth Games in Glasgow, Scotland. This included advising on the tender by the Organising Committee, structuring of arrangements for the supply of host broadcast services for the Games, and negotiations in London of a complex suite of contracts to document the deal including with UK joint venture partner Sunset + Vine.

Peter regularly presents to clients and industry on complex contractual issues, including indemnities, the Civil Liability Act 2002 (NSW), limitations and exclusions of liability, the law of penalties, product liability and the Australian Consumer Law.

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Monique Azzopardi

I desire the very best for HDY's clients. I deliver practical legal solutions that are legally and commercially robust.

Monique Azzopardi Senior Associate

Monique is a specialist in commercial and government law, with a particular focus on procurement, technology projects and transactions, intellectual property and privacy.

Monique has broad commercial experience acting for government and private sector clients, particularly those in the technology, health, education and transport industries.

Monique provides specialist advice relating to technology projects and transactions, the procurement of goods, services and major works, intellectual property, data protection and the Australian Consumer Law. She is regularly called upon to negotiate and draft complex commercial agreements.

With strong public sector knowledge and experience, Monique advises government clients on statutory interpretation and compliance, administrative law, probity issues, government decision making and all aspects of tendering and procurement.

Monique has gained significant in-house experience by undertaking secondments for different entities, including as Relieving Principal Legal Officer at the Department of Education and more recently as Acting Legal Counsel Commercial, Projects and Safety at Transport for NSW.

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