Unfair contracts – business to business

Unfair contracts legislation has now been in place for two and a half years. Only a Court can determine whether a contract term is unfair and there have now been a number of cases where contract terms have been voided on the basis that they are unfair.

These cases include two successful actions by the Australian Competition and Consumer Commission (ACCC) against the following well-known companies:

  • Servcorp – where clauses were voided because it allow Servcorp to automatically renew but not the other party and where they had a right to terminate but not other party
  • JJ Richards & Sons – in which case more than 2,000 contracts were voided on the basis that 8 provisions were one-sided and generally unfair

But it is not just the ACCC seeking to use these laws to void contract clauses. Recently, we have been involved in many matters where parties to litigation are also increasingly citing the law to avoid contractual obligations. They invariably claim they were not provided an opportunity to negotiate or simply that a clause created an imbalance in the relationship.

Unfair contract legislation applies to standard form contracts entered into or renewed on or after 12 November 2016 where:

  • the contract is for the supply of goods or services;
  • at least one of the parties is a small business; and
  • the upfront price payable is no more than $300,000 or $1 million if the contract is for more than 12 months.

A term is unfair if it:

  • creates an imbalance in the parties rights and obligations;
  • is not necessary to protect the interests of the party who gets the benefit of the term; and
  • causes determinant, financial or otherwise, to a small business.

Terms that maybe unfair include:

  • terms that enable one party but not the other to terminate the contract
  • terms that penalise one party but not the others for terminating or breaching the contract
  • terms that enable one party but not the other to vary the contract
  • terms that enable on party but not the other to avoid or limit their obligations

If you have not reviewed your contracts and processes since this legislation commenced, we recommend that a review take place as soon as possible.

If you would like to know more about unfair contracts legislation or employment related matters, please contact us here

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