On 2 February 2016, the Australian Securities and Investments Commission (ASIC) released Information Sheet 211 Unfair contract term protections for small businesses (Information Sheet 211).
Information Sheet 211 summarises the Act's protections for small businesses from unfair contract terms in standard form contracts. In it, ASIC urges businesses to use the transition period to review contracts for terms that would or may breach the new requirements. Information Sheet 211 was issued by ASIC as part of its supervisory role in connection with financial products and services.
Speaking on the release of Information Sheet 211, ASIC Commissioner Greg Tanzer said,
Small businesses, like consumers, have limited market power and a reduced ability to vary 'take it or leave it' standard form contracts. The consumer unfair contract term protections get positive outcomes for consumers and ASIC anticipates being able to do the same for small business, once the protections are extended to them.
Access ASIC's Information Sheet 211.
From 12 November 2016, the existing unfair contract term protections, as set out in the Australian Consumer Law 1 , will be extended from consumer contracts to cover standard form small business contracts where:
If a contract is varied on or after 12 November 2016, the new law will apply to the varied terms.
A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms — that is, it is offered on a 'take it or leave it' basis.
A term of a small business contract will be void if it is unfair.
In the context of consumer contracts, the Federal Court has declared, by consent with the offending party, that clauses in the nature of the following were unfair:
The terms were considered unfair because they:
Ultimately, only a court or tribunal (not the ACCC or ASIC) can decide that a term is unfair.
The terms that are likely to come under the most scrutiny under the new legislation include terms that:
If a court or tribunal finds that a term is 'unfair', the term will be void and no longer binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term.
Businesses have until 12 November 2016 to ensure they are compliant with the new unfair contract terms legislation. If you consider that these changes may apply to you, we recommend you:
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics.
 Schedule 2 of the Competition and Consumer Act 2010 (Cth).
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
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