Helping small business battle the big boys
29/06/2015
New federal law will allow small business to seek remedies where the big boys try to bully them with an unfair contract.
A bill to help small business seek remedies for unfair contracts they have had to enter has gone to the second reading stage in Federal Parliament’s lower house. The Government hopes it will come into full force at the beginning of 2016.
Consumers have had remedies for unfair contracts for many years and finally some of those remedies will be available to the small business sector who were previously ineligible.
But before small business starts celebrating it is important to note that there are lots of limitations which apply and which limit the overall usefulness of the law.
Limits on who qualifies as a small business and the types of contracts that can qualify are important in understanding just how far the law goes – or doesn’t go.
The law is not designed to simply let small business duck out of their contractual obligations. If a term is clear and easy to read, if a price was clearly set out, or if the clause was required by law, then it cannot be declared unfair.
The law is looking at terms which:
• cause a significant imbalance in the parties’ rights and obligations
• cause detriment (financial or otherwise) to a small business, and
• are not really necessary to protect the interests of the party big company.
A small business is one which employed less than 20 people (full-time, part-time and casual) at the time it entered the contract. Only contracts of less than $100,000 in value ($250,000 if they last for more than one year) are eligible.
Only standard form contracts are eligible and not those that are negotiated between the parties. Small business is expected to be able to recognise a bad deal or an unfair contractual term when they see one and walk away rather than enter the contract and then claim it was unfair.
How do you tell if a contract is in a standard form? Factors include:
• whether one party has all or most of the bargaining power;
• whether the contract was prepared by one party before any discussions;
• whether the contract was put as ‘take it or leave it’;
• whether the small business was given the opportunity to negotiate the terms; and
• whether the terms of the contract were tailored to the specific circumstances of the agreement.
Typical examples of contract terms considered unfair are terms which:
• require one party to bear the risk of a high cost, low probability event;
• create an automatic rollover extension of the contract;
• allow one party to unilaterally vary the contract;
• affect or remove the ability of the other party to vary the contract terms, limit their obligations, terminate or renew the contract;
• levy excessive fees;
• impose excessive interest rates on outstanding moneys; or
• affect or limit a party's ability of redress or remedies for breach by the other party.
Overall the power of the court is extensive but it must be said that the Courts have been reluctant to give robust effect to other areas of the law relating to unfair practices in such areas as commercial leasing and franchising. It is unlikely that we will see small businesses being bailed out too often by the courts.
So if you’re a small business, you might want to contact your local member to tell him to get a move on to pass the law. If you’re a big business, you might want to review your processes and standard contracts.
For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.