17 Aug 2016

CU LAB: Making sure your standard form contract isn't an unfair one too

Steven Klimt sets out what you can do to get ready for the extension of unfair contract laws.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


The unfair contact terms regime is scheduled to be extended to small businesses from 12 November 2016, therefore there are a number of steps that companies who need to comply with it should take.

The first step is that most companies will have had to have embarked upon the same exercise in relation to consumer contracts when the unfair contract regime was raised a few years ago.  My strong recommendation and strong advice is that most of the approaches adopted in relation to consumer contracts can also be adopted for small businesses, particularly in circumstances where the consumer contracts are contracts between a company and its customers, and the small business contract concerned are also contracts between a company and its small business customers.

The second point to note though is that there is a major category of contracts that will be covered by the small business unfair contract regime but that were not contacted by the consumer regime.  The small business unfair contract regime applies to businesses who have 20 or under staff and (where the contract is for less than one year) the contract price is $300,000 or less, or, where the contract is for a term of greater than a year, the contract price is $1 million or less.  So in many cases a company's contracts with its suppliers will be contracts entered into with a small business.  These are contracts that are unlikely to have been looked at in the context of the consumer unfair contract terms regime, but they are contracts to which special attention needs to be paid in the context of the extension of the unfair contract terms regime to small businesses.

The final point I would make is that it is a defence to a claim that a term is an unfair contract term if there is a proper commercial justification for the clause.  If a company wishes to rely upon that, it is far better to have that commercial justification documented at the time the contracts are reviewed rather than at the time of challenge.  So the other recommendation I would make is that commercial justification be thought of and documented at the time of review, as part of any unfair contract term review and unfair contract term project.