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14 Feb 2022

Alert: Unfair contract amendments

New bill to expand business unfair contract regulation

Following an extensive review and consultation process a new bill has now been introduced to the federal parliament to amend and extend the regulation of unfair contract terms in standard form small business contracts.

The amended regime will apply to a much-expanded range of standard form small business contracts. It will apply to new contracts made, any contracts which are renewed and to any variations to existing contracts.

Many more contracts will be covered

The scope of “standard form” contracts caught will be increased to include any contract (regardless of the value of that contract) where at least one party has less than 100 full time equivalent employees or an annual turnover of less than $10 million.

This is a very significant expansion. Currently, only contracts with an up-front value of less than $300,000 (or $1 million where the term of the contract exceeds 12 months) with a business which has less than 20 employees are covered.

Financial penalties and other court powers

For the first time financial penalties for including or relying upon unfair contract terms will apply. The penalty for each contravention by a company will be the greater of $50 million, three times the amount of the benefit or value gained by the contravention, or 30% of the annual turnover of the corporation. The risk of multiple contraventions is very significant in this area.

A court will also have specific the power to make orders to void, vary or refuse to enforce all or part of a contract or similar contract.

Standard form

The legislation will make it clear that an opportunity to negotiate minor or insubstantial changes or to choose from a number of options will not take a contract outside the concept of a “standard form contract”.

Implications for businesses

All businesses which use standard or template type contracts should review those contracts and their contract management practices to:

  • identify whether they are or may be using “standard form” contracts which will be caught by the new legislation;
  • consider whether they should be renewing or varying existing contracts (which may be caught under the amendments) before the legislation comes into effect;
  • consider whether to vary their contracting practices to be able to prove that the other party has a meaningful opportunity to negotiate and therefore the contract is not “standard form”;
  • revise “standard form” contracts to amend or remove unfair terms.

Unfair terms

Unfair terms include those which are one-sided or unbalanced in favour of one party about matters such as:

  • termination;
  • penalties for breaches;
  • renewal;
  • indemnities;
  • varying terms once the contract is on foot; and
  • assignment.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.