New contract law comes into effect

On 12^th Novem­ber a new law comes into effect which will pro­tect small busi­ness­es from unfair terms in stan­dard form con­tracts. Whether your busi­ness is large or small, under­stand­ing this new law is impor­tant if you plan to enter into a con­tract on or after this date.

The law, which was passed late last year, sets out exam­ples of terms which may be classed as ‘unfair’ — and if a court or tri­bunal rules as such, the con­tract will not be bind­ing.

The new law applies to stan­dard form con­tracts entered into, or renewed, on or after 12^th Novem­ber 2016. Stan­dard form con­tracts are con­tracts which are pre­pared by one par­ty, which give the oth­er par­ty lit­tle or no oppor­tu­ni­ty to nego­ti­ate the terms.

The law applies where:

• The con­tract is for the sup­ply of goods or ser­vices, or the sale or grant of an inter­est in land;
• at least one of the par­ties is a small busi­ness; and
• the upfront price payable under the con­tract is no more than $300,000 (or $1 mil­lion if the con­tract is for more than six months).

A con­tract may be con­sid­ered ‘unfair’ if it:

• caus­es sig­nif­i­cant imbal­ance to the par­ties’ rights and oblig­a­tions;
• does not pro­tect the legit­i­mate inter­ests of the par­ty advan­taged by the term; or
• caus­es finan­cial or oth­er detri­ment to a small busi­ness if it were relied on.

Some exam­ples of terms which may be con­sid­ered unfair include terms which allow one par­ty, but not the oth­er, to:

• avoid or lim­it their oblig­a­tions;
• ter­mi­nate the con­tract;
• be penal­ized for breach­ing or ter­mi­nat­ing the con­tract; or
• vary the terms of the con­tract.

We can help you under­stand the new law around con­tracts, and how this change might impact you and your busi­ness. Con­tact Hadyn Ori­ti on (02) 6583 0449 for fur­ther infor­ma­tion.