New contract laws could ease fine print woes
- 10 November, 2016 15:58
Vendors and resellers alike may have to review the fine print on their business contracts, as a new law aimed at making standard form contracts between organisations fairer for smaller players come into effect.
The new law, which kicks off on 12 November, is aimed at leveling the playing field for small businesses when they enter certain contractual agreements with larger players.
When it comes to business contracts, the proverbial devil is often in the detail, and the new legislation is designed to take some of the bite out of that detail by effectively voiding contractual terms that are deemed unfair to one party in an agreement.
For resellers, vendors, distributors, and other players in the local channel that deal with “standard form contracts” it could make the difference between having to bow to a larger company’s terms, or having the legal footing to push back on certain contractual stipulations.
The legislation, which is the result of amendments to the Competition and Consumer Act 2010 and Australian Securities and Investments Commission Act 2001, is an expansion of the consumer laws that saw telecommunications provider, Exetel, forced to compensate customers in 2016 after it unilaterally changed contract terms for thousands of customers.
The law applies to contractual agreements for the supply of goods or services where at least one of the parties is a small business, with 20 people or fewer, and the upfront price payable under the contract is no more than $300,000 or $1 million if the contract lasts for more than year.
It has been specifically designed to apply to standard form contracts, where one party has prepared a standardised agreement for a service while the other party has little or no opportunity to negotiate the terms, and must accept an agreement on a “take it or leave it” basis.
No doubt, many resellers are in a position to negotiate on terms of a contact, whether it is with a supplier or a client, for most agreements.
However, for channel partners who find themselves as parties to a standard form contract, the new law will give them greater power in future agreements.
Likewise, it will also give end customers greater power in business agreements, a factor which is likely to prompt some partners to review the terms of their standard contract templates, in the event that they are used for business deals on services.
The Australian competition watchdog suggests that Australia’s two million small businesses sign an average of eight standard form contracts each year.
Under the new law, if a term in a standard form contract is found to be unfair by a court or tribunal it can be made void, meaning it is no longer binding to either party.
At the same time, the rest of the contract will continue to bind the parties as long as it can function without the terms deemed to be unfair.
To be considered unfair, a term must cause a significant imbalance in the parties’ rights and obligations under the contract, not be reasonably necessary to protect the legitimate interests of the party advantaged by the term, and cause detriment to a small business if it were to be applied.
All three elements of the unfairness test must be proved in order for a term to be deemed unfair.
The new law will be jointly enforced by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC).
“Businesses should be aware that from Saturday [12 November], the ACCC is moving from its education phase to an enforcement approach, where we will be targeting unfair contract terms,” ACCC deputy chair Dr Michael Schaper said.
“Positive engagement with the ACCC over the last year has seen businesses such as Australia Post, News Limited, Optus and Scentre Group (Westfield) amend or remove contract terms that may have been problematic when the new law commences,” he said.