ACCC concerned that business not ready for new unfair contract law
The Australian Competition and Consumer Commission is concerned that many businesses are not prepared for the implementation of new unfair contract provisions.From November 12, unfair contract protections that apply to consumers will be extended to cover small businesses.ACCC deputy chair Michael Schaper said he was concerned that many industry sectors were not prepared for the changes.Under the new law, a small business is one that employs fewer than 20 people at the time a contract is entered into. The law covers "standard form" contracts (including finance contracts), which means contracts that are not subject to negotiation between the parties.Protections will apply where the upfront price payable under the contract does not exceed A$300,000, or $1 million if the contract is for more than 12 months. Interest payable is excluded from the calculation of the upfront price.A contract will be deemed unfair if it would cause financial detriment or other detriment to a small business, if it would cause a significant imbalance in the parties' rights and obligations, or if terms in the contract are not reasonably necessary to protect the legitimate interests of the party that would benefit from their inclusion.Earlier this year the Australian Securities and Investments Commission issued guidance for financial institutions. It provided some examples of small business contract terms that may raise concerns.• A finance contract contains a term under which a default would result in the borrower being liable for large fees. The term is likely to be unfair as it imposes a cost that appears to exceed the amount required to protect the lender's interests.• A fixed-term lease includes a term where, unless the business elects to purchase the goods or has made arrangements to return them, the business is automatically entered into a new lease. The business would have to pay fees to get out of the new lease. The problem here is that the term allows the lessor to automatically renew the contract without giving the business the opportunity to give consent.• A loan contract includes a term that allows the lender to vary the terms and conditions of the loan if notice is given in writing. The small business cannot terminate the contract, even if the lender increases fees significantly. Such a contract would probably have to give the business the right to cancel the contract if the terms were changed.Contracts terms that may be unfair include:• terms that enable one party but not another to avoid or limit their obligations;• terms that enable one party but not another to terminate the contract;• terms that penalize one party but not another for breaching or terminating the contract; and• terms that enable one party but not another to vary the terms of the contract.Under the new law, courts will have the power to void contracts, vary them and direct parties to refund money.According to the ACCC, small businesses enter into an average of eight contracts a year.Schaper said: "We anticipate that this change will potentially affect millions of standard form contracts. Almost