• CMI Legal

Unfair Commercial Contract Terms

Updated: Jan 8

In 2015, the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) and the Australian Consumer Law (“ACL”) were amended to protect businesses, especially smaller scale ones, against unfair contract terms.

Photograph by Sora Shimazaki As small businesses tend to find themselves with lesser bargaining power during contract negotiation, such amendment is meant to provide them with an equitable standing when entering into commercial contracts. Small business protected under the legislation must meet the following criteria:

  • The business has less than 20 employees;

  • Its activity involves the supply of goods or services or the sale or grant of interest in land;

  • The upfront price payable under the contract is less than $300,000 or $1 million if the contract is more than 12 months;

  • The contract is a standard term contract entered, renewed or varied on or after 12th November 2016.

An unfair contractual term has three characteristics:

  1. The term creates a significant imbalance between the rights and obligations of parties involved;

  2. It is not reasonably necessary to protect the interests of the benefited party; and

  3. It adversely affects the disadvantaged party, both financially and non-financially.

Unfair terms often benefit one party, but not the other(s) involved in the contract, such as:

  • Allowing only one party to limit or avoid their obligations;

  • Allowing only one party to terminate and penalises the other party for breaching or terminating the contract; and

  • Allowing only one party to vary the contract.

A court or tribunal may declare an unfair term void, rendering the term ineffective while the remainder of the contract continues to bind the parties. If the contract cannot operate without the voided term, the whole contract may be deemed unenforceable. If your contract is created, renewed or varied on or after 12th November 2016, you are encouraged to review its terms and conditions to ensure that the contract does not unfairly disadvantage nor benefit either party. You should amend or remove any unfair terms to minimise the risk of having the contract voided by the court or tribunal.