I previously wrote about the proposed laws last year, but the legislation has only recently come into effect in Australia. These laws have potential for impact upon franchise, distribution and licence agreements.
The legislation applies to all standard form contracts entered into or renewed on or after 12 November 2016, where:
- it is for the supply of goods or services or the sale/grant of an interest in land;
- at least one of the parties to the contract is a ‘small business’ (meaning that it employs less than 20 people); and
- the upfront price payable under the contract is no more than $300,000 (or $1 million if the contract is for more than 12 months).
If an existing contract is varied on or after 12 November 2016, the law applies to the varied terms only.
A ‘standard form contract’ means a contract that has been prepared by one party to the contract and the other party has had either no opportunity or very little opportunity to negotiate the terms of the contract.
A term of a standard form contract will only be regarded as ‘unfair’ if it meets three tests:
- the term must cause a significant imbalance in the parties’ rights and obligations under the contract;
- the term must not be reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- the term must cause financial or other detriment to a consumer if it were relied on.
Affected contracts are likely to include:
- licence agreements or assignments of intellectual property assets;
- franchise agreements;
- agreements for the supply of physical products;
- agreements for the supply of professional services;
- agreements with distributors of products; and
- agreements for the supply or procurement of software or computer hardware.
Given that many businesses use ‘standard form contracts’ for the supply of goods or services to commercial customers in Australia, it is important to be aware of the new laws and how the laws might impact upon these businesses.
If a term of a contract is deemed ‘unfair’, that term will be void and will no longer be binging on the parties to the agreement.
We have been reviewing these types of contracts and making the appropriate amendments to clauses which might otherwise be held as void and unenforceable.
Tony Conaghan, IDI franchising country expert for Australia