The Government has just released a draft bill that proposes to extend protection against unfair contract terms to small businesses.
If implemented, this change is likely to have a significant impact on the building industry, as it will open up new avenues for small businesses to argue that the standard terms imposed on them by suppliers and head contractors are not enforceable. Previously, this protection only applied to consumer contracts.
You have an opportunity to understand and comment on this proposal before it actually happens. The draft bill, explanatory materials and link to submitting your comments can be found here, and submissions are open until 12 May 2015.
What kinds of contract terms will be caught by the law?
Under the Australian Consumer Law, a term is unfair if:
- it would cause significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
For example, if the contract includes a term that gives one party (but not the other party) the right to change key terms during the course of the contract, this could be considered unfair.
Will these changes affect me?
The protections against unfair contract terms previously only applied to consumers. If the proposed changes are enacted the protections will also apply to small businesses — that is, businesses that employ less than 20 people.
Most participants in the construction industry will be affected — either because they are a small business, or they enter into contracts with small businesses who supply goods or services.
The unfair contract term protection will affect:
- all contracts where the up-front price payable is no more than $100,000; and
- contracts where the term is longer than 12 months and the up-front price payable is no more than $250,000.
The proposed protections will only apply however to contracts entered into on or after any amendments have commenced. Existing contracts will not be affected.
What are the protections? What happens if a term is ‘unfair’?
If the contract is caught by the protections, the small business will be able to ask a court to strike out a term on the basis that it is unfair. The contract can still continue to bind the parties, but only if it can operate without the unfair term.
What will this mean for me doing business?
For small businesses, these changes will support you in your day to day transactions and provide you with a new mechanism for challenging contracts imposed on you without any ability to negotiate.
For any business that uses standard terms, you will need to ensure that your terms do not contain provisions that might be considered unfair. Perhaps more importantly, you will need to ensure that your contracts are drafted in such a way that the important terms can still operate if a court finds that a particular term is unfair and unenforceable.
Get your voice heard!
It seems likely that the changes will be implemented in early 2016.
Now is the time to make yourself heard – by making your own individual submission or by contacting your industry group. But you need to act quickly, as the submissions close very soon.
If you would like to know more about the scope of the changes, we are happy to provide you with assistance.
For more information or assistance, please contact: