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Unfair contracts bill a boon for small business

2 September 2021

11:30 AM

2 September 2021

11:30 AM

With all the focus on Covid, it’s good to see that major reform efforts are still underway.  Last week the Morrison Government released a Bill to ‘beef up’ unfair contract laws. It’s a ripper. It’s a game-changer.   

In 2015 the Coalition government passed unfair contract laws for small business people. The laws achieved about 70 per cent of what was needed. But this first step was thanks to Labor, the Greens and independents in the Senate forcing good amendments to the original Bill. 

Six years later we have a new Bill ‘beefing up’ the laws. It gives pretty much all that was needed, even more than could be expected.  

The new Bill comes after the Australian Consumer and Competition Commission had a frustrating five years trying to get big business to comply with the laws. The big business lawyers used every technical trick in the book to avoid complying with the law. Watch out, high-paid lawyers: that’s not going to be the case once this new law passes. 

The Morrison government has negotiated this new Bill with the states and is moving forward with agreement with the states. The Bill is in the Draft Exposure stage and subject to further consultation. Self Employed Australia will be making a submission in strong support of the Bill. 

The Bill applies to consumers and small businesses.  

Importantly for small businesses, the Bill expands the definition of small business to apply to businesses of up to 100 full or part-time employees (excludes casuals) or less than $10m in turnover. The current law only applies to businesses of up to 20 employees.

If passed, there will now be no limit on the value of the contract, which is currently restricted to contracts up to $300,000 in value.

The law will apply to ‘standard form’ contracts, the definition of which is being expanded to include contracts where the contract has been used before. If minor changes have been made to a contract in negotiations, this will not stop the contract being ‘standard form.’

Fines are being introduced for breaches of the law of up to $500,000 per breach for individuals. There are currently no fines. Multiple unfair clauses in any one contract will create multiple breaches, meaning the potential $500,000 fine being multiplied.

A person will have breached the law if they propose to or seek to apply an unfair clause.  On top of fines, a court order can be made to stop someone from engaging in contracts with unfair clauses.  A public warning can be issued about such a person. And the real kicker is that persons can be disqualified from ‘managing a corporation’ due to the use of unfair clauses.  These are very hard-hitting sanctions against users and promoters of unfair contracts.

There are further powers for courts to make orders that will close loopholes in the current laws that are being exploited by ‘top end of town’ smart lawyers. If a clause has been declared unfair by a court, all similar clauses in other contracts are taken to be unfair.  A party must disprove the unfairness if they want to use the clause. An order can be made to stop loss or damage from an unfair clause. Loss does not have to be proven but only that loss may occur. Such an order can apply to a ‘class of persons’ to stop loss.  And orders can be made within six years of a clause being declared to be unfair. 

The law as proposed and currently applying is enforced by the ACCC for contracts covering goods, services and the sale of land, and by ASIC for financial products & services and insurance contracts.   

The extent of the power of the new laws can be demonstrated by the recent ‘slap down’ of the Bank of Queensland by the Federal Court. BOQ has known about unfair contract laws for six years. They were dumb if they didn’t. Yet they ignored the laws.  

The Federal Court has ‘null and voided’ BOQ contracts. They had clauses in small business contracts that (1) let them change contracts at their whim (2) allowed BOQ to declare a default anytime (3) allowed BOQ to charge customers for BOQ negligence (4) forced the customer to disprove a debt if BOQ declared a debt.  These are all bastard clauses that have now been removed by court order. 

Under the new Bill, BOQ and its managers would be in real trouble for having these unfair clauses. Their executives, lawyers and managers could face being banned as a manager in banking or any other corporation. Are you listening, big business managers? Now it’s serious.     

Ken Phillips is Executive Director of Self Employed Australia. 

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