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On 23 August the Commonwealth government released a draft bill which offers additional protections to consumers and small businesses.

The draft bill, titled the “Treasury Laws Amendment (Measures For A Later Sitting) Bill 2021: Unfair Contract Terms Reforms” will amend the Australian Consumer Law and the Australian Securities and Investment Commission Act in relation to unfair contract terms.

While the legislation is still only in draft form, and will be undergoing public consultation until 20 September 2021, it is a timely reminder for businesses to consider the impact the existing regimes, and the proposed amendments, have on their business and contracts.

Existing protections

The unfair contract terms regime seeks to address the imbalance consumers and small business owners face in relation to ‘standard form contracts’, being those contracts where one party has prepared the contract and the other party has little or no ability to negotiate the terms.

The legislation currently applies to standard form contracts where:

  1. One or more of the parties is a ‘small business’, defined as a business which employs less than 20 people, including casual employees and people employed on a regular and systematic basis; and
  2. the upfront price payable under the contract does not exceed $300,000 for contracts lasting up to and including one year in duration, or does not exceed $1 million.

Kells have previously discussed this regime in greater detail, but in summary, if the above conditions are satisfied, remedies are available to a party where a contract term is held to be unfair. This can be as a result of a term causing significant imbalance in the parties’ rights and obligations or if it is not reasonably necessary to protect the interests of the party who it advantages, and it being detrimental to a party if it were to be applied or relied on.

Draft bill

Notably, the bill extends the regime by proposing a new definition of small business, so that the legislation applies to standard form contracts where one or more of the businesses involved:

  1. is a business which employs less than 100 persons, which includes counting part-time employees as an appropriate fraction of a full-time equivalent, and only counting casual employees who work on a regular and systematic basis; and/or
  2. has a turnover that is less than $10 million for its last income year that ended at or before the contract was made. This is determined by including the sum of the values of all supplies they made, except for those which are input taxed, not for consideration, not made in connection with an enterprise that the party carries on or not connected with the indirect tax zone.

The bill also intends to strengthen the remedies and enforcement of the unfair contract terms regime, including by:

  • streamlining and providing additional powers to courts to impose pecuniary penalties and to vary/not enforce a contract; and
  • creating a new rebuttable presumption that terms that have been found to be unfair that are subsequently included in relevant contracts in similar circumstances, are unfair.
So what does this mean?

While the legislation is still only in draft form and there will likely be some amendments after the public consultation, the bill proposes a range of benefits to small businesses.

This includes to those businesses who will receive increased protections, as well as the large number of businesses who will be afforded protections under the regime for the first time due to the expanded definition of small businesses.

This means that all businesses should watch this space. If there is anything our commercial team can assist your business with, please do not hesitate to contact us.