Unfair contract terms for small business review

Treasury has released for public consultation a discussion paper on the impact of the extension of unfair contract term protections to small business and whether the objective set for the original reform has been met. The discussion paper is also seeking views about whether any changes are required to improve the current framework.

The unfair contract term protections are set out in the Australian Consumer Law and the ASIC Act: the ACL provisions address UCTs for goods, services and land, and the ASIC Act provisions address UCTs for financial products and services.

The protections apply to small business contracts that meet prescribed criteria. These are:

• the contract is a standard form contract;
• at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
• the upfront price payable under the contract does not exceed $300,000, or $1 million if the contract runs for more than 12 months.

In October 2018, the Treasury Laws Amendment (Australian Consumer Law Review) Act 2018 gave ASIC and the ACCC investigative powers to compulsorily obtain information, documents and evidence to determine if a term in a contract may be unfair.

Review issues

The current UCT protections apply to businesses that have fewer than 20 employees at the time of entering a contract where the value of the contract did not exceed $300,000 (or $1 million for contracts longer than 12 months). This effectively sets two thresholds for the application of UCT protections – the number of employees of the business and the monetary value of the contract.

Treasury is reviewing whether the headcount approach and the value threshold work in practice.

While the ACL and the ASIC Act do not contain a legal definition for what is a standard form contract, they set out a number of matters for a court to consider in determining if a contract is a standard form contract.

However, it is ultimately a matter for a court to determine whether a contract is a standard form contract. Some small businesses, when entering into a contract, may benefit from greater certainty as to whether the contract they intend to sign is likely to fall within the protections of the UCT regime where a claim that a contract is a standard form contract may be challenged.

Treasury is reviewing whether clarifications would assist to determine whether a contract is a standard form contract.

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