Unfair Contract Terms

Mario Dreosti , 10 May 2015

The Federal Treasury has committed to extending unfair contract protections to small businesses. Mario Dreosti provides an overview.

Last year the ACA made a submission to the Federal Treasury regarding a proposal to extend the unfair contract term protections currently available to consumers to small business.

Treasury has now determined to proceed with this extension and has drafted legislation which is again out for consultation. The ACA is pleased with this outcome, which accords with our submission. We do not think it necessary to provide a further submission on the detail of the draft legislation.

These new protections are relevant to architectural businesses as many smaller architectural commissions and service or supply agreements are likely to meet the definition of small business contracts under this legislation.

The protections are anticipated to come into effect in early 2016. They will apply to contracts where at least one party employs less than 20 people and where the contract value does not exceed $100,000 – or $250,000 if it lasts for more than one year.

The protections will work in the same way as existing standard form consumer contract protections where a term considered to be unfair will be declared null and void to the contract with the remainder of the contract continuing to operate to the extent that it is capable of operating without the unfair term.

An unfair term is defined as a term that:

  • causes significant imbalance between parties rights and obligations under the contract:
  • would cause detriment (whether financial or otherwise) to a party if it were to be relied on:
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by them

There are other considerations of transparency, legal requirements and primary content which are taken into account in determining if a term is unfair.

There are also requirements to determine if a contract is standard which consider the degree to which one party holds most of the bargaining power, has prepared the contract without discussion, and the degree to which the other party had opportunity or real ability to negotiate the terms.

We encourage members to take time to understand the extension and what it means in the context of their practice.

Mario Dreosti is member of the ACA – SA Committee and a principal at Brown Falconer. He was responsible for the ACA submission to the Treasury consultation.