Government announces strengthening of small business unfair contract terms protections


11 November 2020


Announced changes

The federal government has recently announced that the federal, state and territory Ministers responsible for consumer protection have agreed to expand the scope and nature of protections against unfair contract terms in business contracts.  These include:

  • make unfair contract terms unlawful and give courts the power to impose a civil penalty (currently terms found to be unfair are void but there is no penalty for including them in contracts);
  • increase the small business eligibility threshold for the protections to businesses with less than 100 employees (currently 20), and introduce an annual turnover threshold of less than $10 million as an alternative threshold for determining eligibility;
  • remove the requirement for the upfront price payable under a contract to be below a certain threshold in order for the contract to be covered by the unfair contract term protections (currently contracts are only covered if they have upfront price of $300,000, or $1 million for contracts longer than 12 months);
  • amending the definition of standard-form contract (a contract is only caught by the regime if it is a standard form contract as defined) to “clarify” what contracts will be caught.

 

Implications for businesses

The implications of the changes for businesses will be significant.  If these changes or similar are enacted (which seems likely given that the federal opposition supported the review) the range of contracts caught will be expanded very substantially.  It is estimated that 99% of businesses will qualify for protection under the regime.  While there is an intention to ‘clarify’ what is a standard form contract for these purposes, it is likely that there will still be substantial scope for dispute, for example, as to whether there was a sufficient opportunity to negotiate terms to take the contract outside of the standard form contract definition.  In order to ensure compliance and avoid the risk larger businesses will need to review their contracting practices to:

  • identify contracts with parties below the new small business thresholds;
  • consider which contracts are, or are at risk of being, standard form contracts;
  • where practicable put in place or improve processes designed to ensure that there is a clear and documented genuine opportunity for the counterparty to negotiate on terms;
  • review and amend contract templates to minimise the risk of unfair terms which are, or are at risk of being, standard form contracts;
  • update their Competition and Consumer Law compliance programs and training.

 

What’s next?

The Treasury will now develop exposure draft legislation for further consultation.  A timeline for this process has not been announced.

 

 

This article provides general comments only.  It does not purport to be legal advice.  Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

 

Author:

Paul Dugan, Principal in our Disputes Team

Contact
Email:  pdugan@dmawlawyers.com.au
Direct Telephone:  +61 8 8210 2266

 

 

The author would like to thank Nicole Mead for her assistance in preparing this article.