Are your small business contract terms void?

September 1, 2017

In October 2016, we notified you that the Australian Competition and Consumer Commission (“ACCC”) would be introducing changes to laws governing unfair contract terms to benefit small businesses.

On 11 November 2016, those foreshadowed changes were implemented to the ‘unfair contract term’ provisions of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law (“ACL”).

The changes to the ‘unfair contract term’ provisions extended the scope of the ACL, previously applying to only ‘consumers’. The effect of these changes is that certain terms of a ‘small business contract’ or, in some cases, the entire ‘small business contract’, may now be void if:

A particular provision of the contract is ‘unfair’;
The contract is a ‘standard form contract’; and
The contract is a ‘small business contract’.

Section 24 of the ACL provides that a term will be ‘unfair’ if it:

causes a significant imbalance in the parties’ rights and obligations;
is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term;
would cause significant detriment to the parties.

Section 27 of the ACL provides that a court can take into account any of the following in determining whether a contract is a ‘standard form contract’:

Whether one of the parties has all or most of the bargaining power in the transaction;
Whether the contract was prepared by one party before any discussion relating to the transaction occurred;
Whether another party was required either to accept or reject the terms of the contract in the form in which they were presented;
Whether another party was given an opportunity to negotiate the terms of the contract;
Whether the terms of the contract take into account the specific characteristics of another party or the particular transaction; or
Any other matter prescribed by regulations or that the Court thinks relevant.

Section 23 of the ACL states that a contract is a ‘small business contract’ if:

The contract is for supply of goods, services, or the sale or grant of an interest in land;
At least one of the parties is a small business (i.e. employs fewer than 20 persons); and
the upfront price under the contract is up to $300,000 (or $1 million if the contract is for no more than 12 months).

The recent small claims decision in the case of Bass Coast Resort Pty Ltd (“Bass Coast“) v Success Resources Australia Pty Ltd (“SRA“) (Civil Claims) [2017] VCAT 1217 in the Victorian Civil Administrative Tribunal (“Tribunal“) provides useful guidance as to how the ‘unfair contract term’ provisions apply.

Mr Konynenburgh, the Director of Bass Coast, booked to attend a seminar offered by SRA on 30 November 2016. He then arranged for a $3,995 ticket to be purchased by Bass Coast, after ticking a box accepting SRA’s terms and conditions. SRA subsequently postponed the seminar to a date that was not convenient to Bass Coast. SRA offered a goodwill rebate or a discounted ticket, however, that was ultimately refused by Bass Coast who instead filed an application in the Tribunal seeking a full refund.

SRA sought to rely on clause 3 (the “Term“) of its terms and conditions, which provided that SRA could:

“change the Speakers, the Hours, the Dates and/or the Location of the Seminar Services for any reason by notifying you in writing of the change and detailing substitute Speakers, Seminar Hours, Dates and/or Location and:
(a) we shall have no liability to you; and
(b) you shall make no claim against us (including for a refund), in respect of the same.”

Relying on Section 27 of the ACL, the court found that there was no question that SRA’s terms and conditions were in the form of a ‘standard form contract’. On the question of whether the contract between Bass Coast (the Applicant) and SRA (the Respondent) was a ‘small business contract’, the Tribunal referred to Section 23 of the ACL and said:

It matters not that Mr Konynenburgh was going to attend the seminar but that (Bass Coast), the Applicant, paid the fee because by 30 November 2016 section 23 of the Australian Consumer Law had been expanded, to apply to both “consumer contracts” and “small business contracts”… If Mr Konynenburgh was the contracting party, it would be a consumer contract. It seems that he issued this proceeding in the name of the Applicant, because it paid the fee to the Respondent and was the contracting party… On the evidence before me, the contract between the Applicant and the Respondent was a small business contract.¹

In deciding whether the Term was ‘unfair’, the Tribunal referred to Section 24 of the ACL and held that the Term was unfair and void. On this issue, the Tribunal said:

There is no doubt that the [Term] is unfair. The purported rights reserved to the Respondent render the obvious imbalance in the party’s rights and obligations far more than “significant”. The reservation of rights is not reasonably necessary to protect the Respondent’s rights, and they would cause a significant detriment to the Applicant, because they would allow the Respondent to keep Applicant’s money without supplying anything of value to the Applicant.²

Accordingly, the Tribunal found that the Term was in contravention of the ‘unfair contract term’provisions of the ACL, even though the terms and conditions had been accepted by ticking the box declaring that they had read and understood the terms of conditions.

SRA was ultimately required to refund the amount of $3,995 and reimburse the filing fee of Bass Coast’s application to the Tribunal.

Small businesses (and larger businesses who have entered into, or are considered entering into, a contract with a small business) should be extra careful to ensure that none of their contract terms can be considered ‘unfair contract terms’. If a court or tribunal finds that the term was ‘unfair’, that term, or the whole contract itself, may be void.

Gavin Parsons and Associates can assist you with your contracts to ensure they are compliant with these new laws. Please call Gavin Parsons and Associates today on (02) 9262 4471 to discuss.

Authored by John Marr and Gavin Parsons of Gavin Parsons and Associates

¹ Bass Coast Resort Pty Ltd (“Bass Coast”) v Success Resources Australia Pty Ltd (“SRA”) (Civil Claims) [2017] VCAT 1217 at 14, 17, 19.

² Ibid at 21.