From 16 August 2022, the Fair Trading Amendment Act 2021 will create new obligations that are particularly relevant for small businesses. This is a good opportunity to review your standard form contracts, business practices and policies to ensure you comply.
Unfair Contract Terms
The existing prohibition on unfair contract terms will be extended to include business-to-business contracts valued at up to $250,000 per year.
A term may be unfair where:
- It would create a significant imbalance in rights between the parties; and
- The term is not reasonably necessary to protect the legitimate interests of the party relying on it; and
- One of the parties would suffer detriment (financial or otherwise) if the term was to be relied upon.
A court will also take into account the overall context of the contract and the extent to which the term is transparent.
The new legislation will not apply to contracts entered into before 16 August 2022 (unless renewed or varied from that date onwards). Insurance contracts will be exempt until 1 April 2025.
If a Court declares a term to be unfair, it will be an offence for a party to include, apply, enforce or rely on that term in a small trade contract. The offence is punishable by a fine of up to $200,000 for an individual or up to $600,000 for a body corporate.
If your business uses standard form templates that may be caught by these changes, you should review these to ensure compliance. For assistance with reviewing, please contact: