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Changes to the Fair Trading Act — What you need to know

If you are a business owner, then you need to be aware of the upcoming changes to the Fair Trading Act ("Act"), and the potential impact it may have on your business.

In 2015, the Act introduced an unfair contract term regime which prohibited the use of unfair terms in ‘standard form consumer contracts’ in order to protect consumers from unfair terms. The Act has further been amended and as of 16 August 2022, the prohibitions introduced by the unfair contract term regime will extend to ‘standard form small trade contracts’.

As such, before entering into any contracts, businesses will need to ensure that they comply with the new rules to avoid their terms being declared unenforceable by the Court and potentially having to pay a fine.

How to know if your business contracts are subject to the unfair contract terms regime?

A contract will be subject to the unfair contract terms regime if:

  • It is a trade contract;
    A contract between businesses where both parties to the contract are engaged in trade.
  • It is in a standard form;
    A contract the terms of which are not subject to effective negotiations between the parties. For example, terms of trade or independent contractor agreements.
  • It is a small contract:
    A contract that does not exceed an annual value of $250,000 (including GST, if applicable) when the trading relationship first started. If your business enters into a contract as part of a new trading relationship with another business, and the value of the contract is less than $250,000, then the contract is a small trade contract and is subject to the unfair contract terms regime.

How to know if a contract term is unfair?

A term is unfair if the Court is satisfied that it:

  • Creates a significant imbalance between the rights and the obligations of the parties under the contract;
  • Is not reasonably necessary to protect the legitimate interests of the party who would benefit from the term; and
  • Causes detriment to one of the parties if applied, relied upon or enforced.

 

What terms are exempt from being declared unfair?

Some terms are “exempt terms” that cannot be declared unfair by the Court, and these are terms that:

  • Define the main subject matter of the contract; or
  • Set the upfront price payable under the contract; or
  • Are required or expressly permitted by any enactment.

 

What to do if a term is declared unfair?

If the Court declares a term unfair, a business must no longer include, apply, enforce, or rely on the term; otherwise it may face a fine of up to $200,000 for an individual or $600,000 for a body corporate.

For further Commercial Law advice, get in touch with Jeremy and the Commercial Law Team.

 

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