As a manager or owner of a business, you may have come across a wide range of business contracts. Standard form, consumer and small business contracts are commonly used in everyday business and each may be more suited to your organisation than the other.
Standard form contracts
Basically, standard form contracts are contracts between a business and a consumer where the consumer has little or no rights to negotiate in relation to the terms of the contract.
Generally they are referred to as a “take it or leave it” contracts.
They are usually used to ensure cost effectiveness when conducting business and are prepared by the business which is offering the product or service.
There is no actual legal or regulatory definition of a standard form contract.
However, in determining whether a contract is a standard form contract, a court may consider any relevant matter, but must consider whether:
- the business offering the product or service has all or most of the bargaining power relating to the transaction
- the contract was prepared by the business before any discussion with the consumer about the transaction
- the consumer was in effect required to accept or reject the contract as it was offered (i.e. on a ‘take it or leave it’ basis)
- the consumer was given an effective opportunity to negotiate the terms of the contract, and
- the terms of the contract take into account the specific characteristics of the consumer or the particular transaction.
Currently section 23 of Australian Consumer Law (ACL) which is found at Competition and Consumer Act 2010 – Schedule 2, provides that unfair terms contained in a standard form consumer contract are void.
However, before this provision applies three (3) factors must be established. A term can only be voided if:
- the contract is a “standard form contract”;
- the standard form contract is a “consumer contract”; and
- the term is “unfair”.
A consumer contract is a contract for:
- a supply of goods or services; or
- a sale or grant of an interest in land;
to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
Further it should be noted that Section 23 not only provides that consumer contracts are void but also small business contracts.
Small business contracts
A contract is a small business contract if:
- the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
- at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
- either of the following applies:
- the upfront price payable under the contract does not exceed $300,000;
- the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
When counting the persons employed by a business a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis.
Changes coming in November 2023
Following the passing of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) the new Unfair Contracts Terms (UCT) regime will dramatically change Australian consumer law from November 2023.
These changes will affect all contracts after 9 November 2023 including:
- any new contract; and
- any existing contracts that has its terms is renewed or varied
Currently when one of these contracts is found to have unfair terms it is void but under the amendments penalties can be imposed on a business where it proposes, applies or relies, on terms which are unfair in standard form contracts with consumers or small businesses.
Additionally the definition of ‘small business’ will change and apply to businesses which:
- employs fewer than 100 persons: or
- has turnover of less than $10 million (or both),
How can FC Lawyers assist?
The business and commercial team at FC Lawyers has been helping business both large and small for nearly 30 years.
The year ahead will be an import time to ensure your business is ready for these changes and that your standard form contracts are in order and do not leave it until the last minute.
Contact us to discuss your needs and how we can help to review your current contracts and assist in ensuring that your business complies.
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