Between 1 January 2011 and 31 December 2014 the Australian Competition and Consumer Commission ("ACCC") was contacted by 1,375 small businesses to complain about unfair contracts. From 12 November 2016 small businesses will benefit from changes to the current laws governing unfair contract terms as a result of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) ("Act").
Commonwealth Parliamentary Debates appear to reveal the motivation behind the Act, which will amend Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law ("ACL")), with Members expressing concerns that small businesses are vulnerable and are being backed into a corner when negotiating contracts.
The amendments to the ACL will principally have the effect of extending the protection for "unfair consumer contracts" to "small business contracts". Part 2.3 of the ACL will apply to standard form contracts entered into, or renewed, after 12 November 2016 with the effect that any unfair terms within those contracts will be deemed void.
A "standard form contract" is a contract prepared by one party and presented to the other on a "take it or leave it" basis. The party presented with the contract is given little to no opportunity to negotiate the terms of a standard form contract.
The new laws will apply to business-to-business standard form contracts where:
The ACCC has stated that the upfront price payable includes any payments to be provided for the supply, sale or grant under the contract that are clearly disclosed at or before the time the contract is entered into.
The ACCC has also acknowledged that it may be difficult for businesses to know the number of employees of the other contracting party. This will make it difficult to assess whether the other contracting party is a "small business" for purposes of the Act. In this respect the ACCC has provided the following comment:
Even if you take steps to find out how many employees the other party has (e.g. by seeking written assurance), the law will still apply if it turns out that the other party in fact has less than 20 employees. If in doubt, it's safest to assume that your contract is caught by the law.
Section 24 of the ACL provides that a term is unfair if:
In considering whether a term is unfair the Court will look at the transparency of the term and will consider the contract as a whole. In considering whether a term is transparent the Court will assess whether the term has been expressed in plain language, is legible and presented clearly, as well as being readily available to the party affected by the term.
Examples of unfair terms (prescribed by the ACL) include:
The ACCC has confirmed that the following industries will be the subject of initial compliance activities:
The Federal Court of Australia has previously considered the effect of Part 2.3 of the ACL in the context of consumer to business contracts. Businesses should be guided by these examples when considering whether the terms of their contracts may be deemed unfair.
The ACCC is advising businesses to take the following action if they believe a term of their contract is unfair.
To conclude, we provide the following peculiar example of a term that the Federal Court of Australia has recently found to be unfair in the context of consumer-to-business contracts.
The case below relates to the terms of supply of Christmas hampers. Chrisco Hampers had included a term in its contract that allowed Chrisco Hampers to continue to withdraw funds from its customers' bank accounts after the customers had completed payment for their hamper, on the basis that the amounts withdrawn would be held as a prepayment for any future hamper purchased. The term would apply unless the customer opted out of it.
In Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited  FCA 1204 (10 November 2015), His Honour Justice Edelman stated:
Should you have any questions regarding your contract or that of another business you're dealing with, please contact one of our experienced solicitors.