Unfair contract terms ruled illegal as governments agree to protect small business

Assistant Treasurer Michael Sukkar announced on Tuesday that Commonwealth and state and territory governments have agreed to make unfair contract terms unlawful, giving courts the power to impose a civil penalty when a breach occurs.

In a statement issued by Mr Sukkar, he explained that evidence gathered through public consultation indicated that unfair terms remain prevalent in standard form contracts and that there is uncertainty around the scope of the existing protections.

As such, following discussions at the Consumer Affairs Forum last week, the Commonwealth and state and territory governments have now agreed to strengthen existing unfair contract term protections in the Australian Consumer Law, by: 

• making unfair terms unlawful and giving courts the power to impose a civil penalty;
• expanding the definition of small business and removing the requirement for a contract to be below a certain threshold; and
• improving clarity on when the protections apply, including on what is a ‘standard form contract’.

Treasury is now expected to develop exposure draft legislation that will provide a further opportunity for stakeholders to comment on the detail of the reforms.

But while the Australian Small Business and Family Enterprise Ombudsman Kate Carnell welcomed the agreement, she was disappointed to see unfair contract terms remain the subject of courts. 

“While these reforms do offer small businesses more confidence to enter into a contract with a larger business, it is disappointing that unfair contract terms will still need to be decided by the courts," said Ms Carnell. 

“This has proven to be a significant barrier for small business as pursuing legal action is a costly, stressful and time-consuming exercise."

Moreover, she noted that these reforms must apply to government contracts, which often impose unfair contract terms on small businesses.

“We look forward to seeing draft legislation to ensure these necessary reforms come to fruition as a matter of urgency,” said Ms Carnell.