In 2016 the way that a business enters into a “small business contract” will have to satisfy the proposed provisions for unfair contract terms set out in the Australian Consumer Law (ACL). These amendments are set out in the Treasury Legislation Amendment (Small-Business and Unfair Contract Terms) Bill 2015. In addition the ASIC Act also proposes to introduce a “small business contracts” but on slightly different terms which may cause confusion.
Once these amendments have passed through the Australian Parliament the details will extend the unfair contract terms provisions from just consumers to consumers and small business which will often include franchisees.
The ACL specifies that any contract that contains an unfair contract term is void if the term in the circumstances is unfair and part of the standard form contract of the business i.e. has not been subject to detailed negotiations between parties of relatively equal bargaining strength.
Any business considering non-negotiable contract terms which are necessary to protect the business’ legitimate interests will need to be ready to provide good reasons for including those clauses in their standard form contract or otherwise risk that the clause will be regarded as unfair.
All businesses should now review their standard form contracts that are within the definition of a “small business contracts” which is for the ACL:
• the supply of goods or services or a sale or grant of an interest in land
• one party to the contract employees less than 20 people
• the upfront payment is less than $100,000 or the contract is for more than 12 months with an upfront payment of less than $250,000
For compliance with the ASIC Act the definition of “small business contracts” will be:
• the supply of financial products or actual or proposed supply of financial services
• one party to the contract employees less than 20 people
• the upfront payment is less than $100,000 or the contract is for more than 12 months with an upfront payment of less than $250,000
The consequences of a small business contract term being contrary to the proposed legislation will be that the contract term is void. This may cause the entire contract to be unclear and lead to consequences and payments that the business did not intend.
Each business seeking to issue standard form contracts that have typically one-sided clauses can still rely on those if there is a clear justification and need to protect the legitimate interests of that business. However clauses that historically have been contained within a standard form contract that often have not been looked at for years or decades may need to be modified or deleted due to the fact that the detriment to the other party will outweigh any argument that the contract term is reasonably necessary.
Making an assessment as to which clauses could be regarded as unfair will often require objective independent review as in fact many clauses that would appear on first reading to be unfair are justifiable. That justification may require collecting statistical information, surveys and internal financial reviews which may take time to accumulate and often cannot be established retrospectively. Consequently businesses need to be proactive, identify contract terms that may be challenged and develop clear reasons based on objective business reasoning so that lengthy and expensive court case reviews can be avoided.
About the author: Alan Branch – Optivance 360
Alan is an experienced consultant, commercial lawyer and franchise expert recognised for his skill in negotiating and completing business set up and expansion projects. Alan while franchise team leader at Donaldson Walsh Lawyers, achieved the Franchise Council of Australia (FCA) Excellence in Franchising Supplier of the Year Award in 2009 and 2010 and the international CorporateINTL Award for Franchising Law Firm of the Year in 2010. Alan was a director on the board of the FCA from 2003 to 2009 and is the National chair of the Ethics Committee for the FCA. Alan is a recognised International speaker and publisher on franchising.
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