on Sunday, 07 February 2016.
Eager followers of Counsel on Demand Legal Updates (too many to count !) will be aware of changes to unfair contract law terms which will take effect in November 2016 . The changes are primarily designed to protect smaller businesses from unfair terms in standard form contracts.
Until now, the protections have only applied to mum and dad consumers. However, the new laws mean that small businesses can take advantage of the protections offered . At the same time, a small business which enters into a relevant contract with another business (however small or large the other business) won't be able to rely on an unfair term which the small business tries to impose - it's a two way street. It's not simply a David and Goliath scenario.
The obvious question is 'what is an unfair contract term?". As the law doesn't currently apply to business consumers , for now, we can only look to cases brought in respect of mum and dad consumers for examples . Telecommunications services provider Exetel was recently pulled up by the ACCC , the consumer champion , in respect of changes to its fixed term residential broadband plans.
The contract in question , included a clause saying that Exetel could vary any part of the agreement for any reason. Exetel then told customers that they must either change their broadband plan or terminate their Exetel service without being compensated for the lost services . The ACCC considered that the clause and associated action was unfair and Exetel subsequentaly agreed to compensate consumers for loss of service - which had the clause remained , they would not have been required to do. So although customers had agreed to a contract which said that the service could be varied at any time , on Exetel's whim, effectively, that term was considered unfair and it didn't stick.
These are just some of the things your business should be doing :-
- Start now - both the consumer watchdog, the ACCC and ASIC have explicitly stated that they will start reviewing contracts as soon as the law takes effect.
- Consider what standard form contracts your own business uses for its customers.
- Consider what standard form contracts you enter into with other businesses, using their standard form contracts.
- Make sure you understand what you are looking for - what is likely to be an unfair term ?
- Prepare - if you have annual contracts which automatically renew, they will be caught.
- Make sure you understand the effect of an unfair contract term - this could be critical if a supplier , for example, is trying to impose unfair terms on your business. That understanding could give you a significant commercial edge.
- If any of your own terms are unfair, understand that they may well not give you the protection you think they do - be prepared and be ready to make changes.
The new laws apply to a standard form contract when:
- One party to a contract is a small business - that is a business with less than 20 employees, including regular casuals ; and
- The contract is for the sale of goods and/or services (or an interest in land); and
- The value of the contract is less than $300,000 for an upfront one off price or, if the contract is for more than 12 months, eg a services agreement, up to $1M.