[EP 032] Quick Tips: How to get out of unfair contract terms if you are a small business

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CLICK HERE to download the transcript for this episode.

Hi, it’s Joanna Oakey here and welcome back to Talking Law. Today, we have another Quick Tips session. Our Quick Tips sessions are all about giving you the high level areas of information that you need to know in relation to a particular area, in the shortest possible time. So if you’ve only got five minutes spare and you want to know about an area of law, just flick through all of our quick tips sessions and find something that suits you.

What to expect in this Quick Tip Session

Today’s Quick Tips session is all about how to make the unfair contracts legislation work for you if you were a small business. We talked about this legislation in Episode 3 in relation to understanding the unfair contracts legislation and how it might impact your business both in terms of if you are a supplier or if you are a customer.

This episode is all about if you’re on the receiving end of a contract, which you believe to contain unfair terms and you’re a small business (a small business means a business that has under 20 employees) and if you are on the receiving end of a contract that has unfair contract terms in it, you may now have rights under unfair contracts legislation to have those clauses deemed void.

Clauses that might be considered to be unfair

Clauses that may cause significant imbalance in the rights and obligations of one party versus the other are something that the courts would be likely to deem unfair; or one that would cause detriment to the small business if it were relied on and that isn’t reasonably necessary to protect the legitimate interests of the larger business.

Let’s maybe look at this in the context of some examples of some types of clauses that might be considered to be unfair under this new legislation. Possible examples are clauses where say for example one party may have the right to vary the contract or to terminate the contract and the other party doesn’t.

Clauses that give one party the right to terminate for minor breaches might also be considered to be unfair. And certainly there’s lots of contracts out there that have a termination clause that gives one party the right to terminate the contract on the basis of any breach in the contract. These types of clauses might be considered to be unfair.

 

Other examples are where early termination fees are claimed or where the liability of the larger party is limited or capped in a way that is unfair and unrepresentative of the relationship.

Liquidated damages clauses, those clauses that apply excessive fees in the circumstances of say for example late delivery (that’s an example of where liquidated damages clauses are often used in a contract); these might also now be seen to be unfair under this new legislation. And wide indemnities may now also be seen to be unfair.

Establishing your right under this new legislation

If you are a small business, that means a business with a head count of less than 20 staff, how do you determine whether or not you have the right to claim that clauses within an agreement that you have signed or agreed to are unfair, and therefore void under this new legislation?

Firstly, you need to establish that the contract price is less than $ 300,000 or if the contract is for a period of time greater than a year, that the contract value is less than a million dollars.

Secondly, you have to establish that this clause was part of a standard form contract. A standard form contract can mean contracts that are pre-printed (they’re obviously standard form). But it might also mean contracts that aren’t pre-printed but where you did not have a genuine chance to negotiate or tailor the terms.

So if you are a small business, a business with a headcount a little less than 20, and you think that you have signed up to or somehow agreed to a contract that is a standard form contract under the contract price of $ 300,000 or if for a greater term than a year under a million, and you think it contains a clause that is unfair in the circumstances, why don’t you go ahead and contact us and we can have a look for you and let you know whether or not you have a likelihood of establishing an argument that that clause is void under the new legislation and therefore unenforceable.

That’s it for our quick tips in relation to unfair contract terms for small businesses. If you’d like more information about this topic, head over to our website at talkinglaw.com.au. Through that website you’ll be able to download a transcript of this podcast episode if you’d like to read it in more detail. You’ll also be able to find episodes 3, where we talk about this concept in a lot greater detail. And there you will also find details of how to contact our lawyers at Aspect Legal if you’d like help with any of the areas that we talked about today, or if you’d like us to help you assess whether or not you have a contract at the moment at which you are on the receiving end of an unfair contract term that you might be able to deal with under this legislation.

And finally if you enjoyed what you heard today, please pop over to iTunes and leave us a review. We’d be very grateful. Thanks for tuning in again today to the quick tips session on Talking Law. You’ve been listening to Joanna Oakey. See you next time!