Small businesses have long faced the unsavoury necessity of accepting unfavourable terms in a “take-it-or-leave-it” standard-form contract when negotiating with larger establishments.
There is nothing wrong with hard bargaining but, as legislatures have come to realise, unequal negotiating power may lead to a deal that is fundamentally unfair for the weaker party. More than a little of that can seriously distort markets and harm the larger goal of free and open trade.
Small businesses in Australia may now have recourse to the kind of protection that has been available to individual consumers for several years.
Recent amendments to the Australian Consumer Law 2010 and the Australian Securities and Investment Commission Act 2001, may provide a remedy with respect to unfair provisions in standard-form contracts entered into or amended after 12 November 2016. The laws are not self-executing, however. Small business owners must take affirmative steps to protect their rights if they feel that the terms of a contract are unfair.
How do the new laws protect small businesses?
The changes in law apply to standard-form contracts entered into, renewed or amended after 12 November 2016 where:
• The contract is for goods, services, interests in land, financial products or financial services;
• At least one of the parties employs fewer than 20 people ; and
• The upfront price payable under the contract is no more than $300,000 (or $1 million for contracts which continue for more than 12 months);
Whether an agreement is a standard-form contract will depend, among other factors, on:
• Whether one of the parties has disproportionate bargaining power in the transaction;
• Whether the contract was prepared by one party without discussion or negotiation; and
• Whether the other party was, in effect, required to either accept or reject the terms of the contract in the form in which they were presented.
If the transaction meets these criteria, the aggrieved party may seek a Court order to the effect that a given term is unfair. A term may be unfair, for example, if only one of the parties may:
• Avoid or limit their obligations under the contract;
• Terminate the contract, especially if without penalty;
• Vary the contract; or
• Breach the contract without penalty.
If the Court determines that a term in the contract is unfair, it may simply sever that term. Alternatively, in appropriate situations, the Court may void the entire contract, order the return of property or a refund for its value or compel a payment equal to damages.
In reality, however, most small businesses want to resolve disputes without litigation wherever possible. If you believe that a term in a contract covered by the recent amendments is “unfair” as defined by law, the first step would simply be to ask the other party to remove or amend it so that it is no longer so. Only if no acceptable solution can be reached, is it time to contact a lawyer as well as your state or territorial consumer protection agency. Where the term is contained in a contract relating to financial products or services, you should also contact the Australian Securities and Investments Commission.
The lawyers at Owen Hodge lawyers are experienced in contract negotiation and would be happy to assist your small business in the resolution of disputes involving contract terms. Please call us to schedule a consultation at 1800 770 780.