Small business to benefit from unfair contract term provisions

The Commonwealth Government is proposing to extend the unfair contract term protections in Part 2–3 of the Australian Consumer Law to small businesses.

Crown Law previously published a Legal Update about the unfair contract term provisions. The provisions have the effect of voiding unfair terms in standard form contracts but only where the contract is with an individual consumer.

The consultation paper expressly acknowledges the potential vulnerability and disadvantage faced by small businesses because of unfair contract terms. It is perceived that small businesses can be in the same position as consumers when negotiating standard form contracts with large businesses.

A consultation paper inviting submissions about the proposal was released on 23 May 2014. Submissions have now closed.

The options considered in the consultation paper to address the disadvantage caused to small businesses are:

• maintaining the status quo
• a non-regulatory response
• a legislative amendment to extend Part 2–3 of the Australian Consumer Law to small business contracts
• legislation to require contracts with small business to be negotiated on request.

The preferred option identified in the paper is to extend Part 2–3 to small businesses.

One of the most important aspects of any legislative change will be how ‘small business’ is defined because it will determine the scope of any extension in the application of the unfair contract term provisions. The consultation paper identifies a number of possible definitions, including:

• all businesses except for publicly listed companies
• business-to-business transactions below a certain value
• businesses that have less than a certain annual turnover
• businesses that have less than a certain number of employees.

At this stage, we must wait and see what the response will be to the consultation paper and submissions. Crown Law will keep you updated as new information comes to hand.

^{The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.}