While operating a small business, you may be placed into situations where you are dealing with much larger businesses through such things as financial service agreements, supply agreements, distribution agreements etc.
Understanding that there is an imbalance of power when these agreements are made, the Australian Consumer Law (ACL) was amended in November 2016 to protect small businesses from unfair contracts with a further amendment in 2021 to cover unfair insurance contracts from 5 April 2021.
What does this do?
This is actually quite a broad range of protections to ensure it covers broad areas of your operations as a small business operator, but in summary:
The contract is for the supply of goods and services, or the sale of an interest in land; and
At least one of the parties is a small business (less than 20 employees); and
The upfront price payable in the contract is not greater than $300,000 or if the contract is for more than 12 months, the upfront price is not greater than $1million.
What is an unfair contract term?
Some guiding factors in determining if a term of a contract is unfair are:
The term causes an imbalance of the parties’ rights and obligations in the contract;
The term is not necessary to protect the legitimate interests of the party benefiting from the term; and
The term would cause detriment to a party if it were applied or relied upon.
Common unfair contracts.
A common identifier of an unfair contract is a Standard Form Contract. There is where a contract has been drafted and supplied to you and you have no ability to negotiate any of the terms, that is, it comes on a ‘take it or leave it’ basis. Other identifying factors for such Standard Form Contracts are:
The bargaining power is solely with one party;
The contract is pre-prepared without consultation between the parties; and
You were given no opportunity to negotiate any of the contracts terms.
Although it may feel like you have to accept these contracts as and when they arise, the unilateral application of trade terms is not always legally acceptable. Furthermore, there are looming greater changes to these laws to become more inclusive to who small business operators are. If you are facing difficulties due to a contract that you have entered that is adversely affecting you, you should seek legal advice from your solicitor.
Longton Legal are prepared to assist you in these situations. Talk to one of our experienced Commercial solicitors to give you the right advice for you and your business.
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*
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