Small business and unfair contract terms: changes on the horizon

Standard form contracts have long been under a cloud and have troubled contract theory because they may arise even though there may have been no ’meeting of minds’ between the parties. Even so, merchants have found them very useful, probably for as long as there have been merchants. In Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308 Lord Diplock noted the ’ancient’ history of standard form contracts and approved those between merchants facilitating terms of trade, but criticised the growth of one-sided contracts between parties of unequal bargaining power.

Non-negotiable standard terms are said to be useful where marketplace efficiency is improved by avoiding the waste of time and money in negotiating details of ordinary transactions and the efficient delivery of products (Burke, J. Reinventing Contract 10 (2) MUJEL (2003), paragraph 3). Here the object of standard form contracts is not to overbear the customer but rather to serve the market and hold down prices which would otherwise be inflated by negotiating each contract, and to treat all customers alike.

The contrary argument is that, far from promoting an efficient marketplace, standard form contracts distort the relationship between seller and buyer and allow the imposition of one-sided contracts leaving little or no recourse to the weaker party, raising unfairness concerns (Productivity Commission, Review of Australia’s Consumer Policy Framework, 45. 30 April 2008, 6). State and Federal legislation has sought to ameliorate the imbalance and the Australian Consumer Law, pt 2-3 provides a court may determine that a term of a standard form consumer contract is unfair and therefore void.

Both the Australian Consumer Law 2010 (ACL) and the Australian Securities and Investment Commission Act 2001 (ASIC Act) have broadly equivalent terms relating to consumer unfair contracts, however they did not deal with small business. A Treasury review in 2014, Extending unfair contract protections to small business – consultation, recognised the dual role of small business as suppliers and consumers in their own right, and their lack of resources leading to instances of unequal bargaining power.

In response to the 2014 Treasury consultation, the Queensland Law Society submitted that ‘it is self-evident that the majority of small businesses do not have the same level of bargaining power as larger businesses … extending the unfair contract terms protections to small businesses merely improves access to justice for another group that has been identified as being at risk, or alternatively marginalised as a result of diminished access to justice’. The enquiry resulted in the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (the Act).

Contracts involving credit, housing and construction, utilities, hire of goods, direct selling, motor trades, retail leases and communications as well as, for example, franchising, accommodation, professional and technical services, publishing, entertainment, health care, and education might well be challenged.