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Assistance for David facing Goliath is fast approaching reality

Contract Law News | October 2016

From 12 November 2016 the new Commonwealth Government reforms to the Australian Consumer Law will address some existing inequalities in the bargaining position of small business vs big business in standard form contracts.

The new legislation will apply to standard form contacts where:

  • one of the parties is a “small business”, defined as a business which employs fewer than 20 people including part-time and regular casual employees
  • the contract is for the supply of goods and services or an interest in land, and
  • the contract applies to a value of $300,000 or up $1,000,000 over a period of 12 months.

The new law seeks to protect small businesses from being effectively “bullied” into engaging into contracts by big business where the terms are deemed by a court to be unfair or unconscionable. The scenario that the new law seeks to address is where the small business has no opportunity to negotiate the terms of a contract and the contract is submitted to the small business by the big business on a “take it or leave it” basis which results in an unfair position for the small business.

The new law will be part of the Australian Consumer Law which is Schedule 2 to the Competition & Consumer Law (Cth). The court or NCAT (NSW Civil & Administrative Tribunal) and ASIC (in relation to financial products and services) will have the jurisdiction to hear and decide claims under this new law.

The court or NCAT will be required to judge the “fairness” of a contract by considering the three tests of fairness, namely:

  1. Does a term of the contract cause a significant imbalance by favouring one party over the other?
  2. Is the term of the contract necessary to protect the legitimate interests of party who seeks to obtain an advantage from the term?
  3. Would the term of the contract cause detriment through financial or other loss, or inconvenience if the term is enforced?

A court would also examine how the term is expressed in the contract, whether it is in clear legible print or in fine print, or written in “jargon”. The court would also look at the contract as a whole and the overall position of benefits and detriments to each of the parties.

In deciding in favour of a complainant the court (or tribunal) is able to strike out the offending term. The balance of the contract will remain on foot and the parties will still be bound by the balance of the contract.

Contact the lawyers at Forum Law, in Sydney’s Leichhardt to discuss any contracts you have received or contracts you require to be prepared to ensure that your rights and obligations will withstand scrutiny by other parties or by a court. We offer free parking and a friendly professional environment to advise and assist you with all your business processes and decisions. Call us for a free 30-minute conversation on (02) 9560 3388 or in our friendly and professional office in Leichhardt where parking for clients is free.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.