Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 is an amending Act. Its purpose was to extend unfair contract term protections to certain small business contracts.

It did this by changing two separate Commonwealth laws. First, it amended the Competition and Consumer Act 2010, including the Australian Consumer Law in Schedule 2. Second, it amended the Australian Securities and Investments Commission Act 2001. That split matters because the coverage is not identical across both laws. The Competition and Consumer Act pathway deals with certain contracts for goods, services and land interests. The ASIC Act pathway deals with certain financial products and financial services contracts.

The practical result was that unfair contract term protections no longer sat only in the consumer space. From 12 November 2016, certain standard form business-to-business contracts also came within the regime if the statutory tests were met. Businesses using standard templates therefore needed to look beyond consumer-facing documents and review a much wider range of commercial agreements.

A contract can qualify as a small business contract if, at the time the contract is entered into, at least one party is a business that employs fewer than 20 persons. This is a point-in-time test. You assess the employee count when the contract is made, not by looking at later growth or later staff reductions.

When counting employees, casual employees are not counted unless they are employed on a regular and systematic basis. That means businesses should not rely on a rough estimate or payroll shorthand. If coverage matters, check the actual headcount position at entry, including whether casual staff were regular and systematic.

The contract must also satisfy the upfront price threshold in the 2015 amendments. The upfront price payable must not exceed $300,000, or $1,000,000 if the contract has a duration of more than 12 months. Duration therefore matters as much as price. A longer contract can still qualify under the higher threshold.

These thresholds are the thresholds set by the 2015 Act as enacted. If you are assessing a current contract position, confirm whether later legislative changes have altered the thresholds or the broader regime before relying on this page alone.

The Act does not apply to every business contract. It extends the unfair contract term regime to certain standard form contracts only, and the type of contract matters.

Under the Competition and Consumer Act amendments, a small business contract must be for a supply of goods or services, or a sale or grant of an interest in land. This captures many common commercial arrangements such as supply agreements, service agreements, leases and other land-related arrangements, provided the other statutory requirements are met.

Under the ASIC Act amendments, the declaration provisions apply to a standard form contract that is a financial product, or a contract for the supply, or possible supply, of services that are financial services. This is the financial services side of the regime and is separate from the goods, services and land pathway under the CCA.

In both regimes, standard form status is critical. The legislation refers to standard form contracts and preserves the existing framework for dealing with those contracts. If a contract was genuinely negotiated and not standard form, the regime may not apply in the same way. Businesses should therefore identify both the contract type and the formation process before assuming the law applies or does not apply.

Before relying on this Act for a contract review, work through the trigger points in order.

First, ask whether the contract is standard form. Second, identify whether the contract falls under the CCA pathway or the ASIC Act pathway. Third, confirm that at least one party employed fewer than 20 persons when the contract was entered into. Fourth, calculate the upfront price payable and compare it with the relevant threshold. Fifth, check whether the contract was entered into, renewed or varied on or after 12 November 2016.

For contracts under which credit is or is to be provided, the ASIC Act amendments specifically say that interest payable under the contract is disregarded when working out the upfront price payable. That is a narrow but important rule. A business reviewing a credit-related financial contract should not assume the full payment stream counts in the same way as a non-credit contract.

Businesses should also check whether an exclusion applies. The legislation excludes constitutions of companies, managed investment schemes and other kinds of bodies under the ASIC Act pathway. It also allows prescribed Commonwealth, State or Territory laws to displace the regime for small business contracts in some cases under both pathways.

This Act did not create a completely separate unfairness test for small business contracts. Instead, it extended the existing unfair contract term framework so that it also applied to qualifying small business contracts.

The amendments inserted small business contracts into the existing definitions and operative provisions dealing with unfair terms, transparency and reliance. They also inserted references to the detriment that a term of that kind would cause to businesses employing fewer than 20 persons. In other words, the Act adapted the existing regime so it could operate in the small business context.

The legislation also preserved the rule that terms defining the main subject matter of the contract, and terms dealing with the upfront price payable, are unaffected in the way set out by the underlying Acts. That means not every important commercial term is automatically open to challenge under the unfair contract term provisions.

For businesses, the practical point is that one-sided template clauses should be reviewed in context. Standard form rights to vary, terminate, renew automatically, shift risk or impose broad indemnities may need close attention, but the legal analysis still sits within the broader statutory framework rather than a simple checklist of banned clauses.

The Act amended both regimes so a court may declare that a term of a small business contract is an unfair term, provided the statutory requirements are met.

On the CCA side, the court may make that declaration on application by a party to the contract, if that party was the relevant small business when the contract was entered into, or by the regulator. On the ASIC side, the court may make the declaration on application by a qualifying party or by ASIC. In both pathways, the declaration power is tied to standard form contracts, and on the ASIC side it is also tied to contracts that are financial products or contracts for financial services.

The legislation also states that these declaration powers do not limit any other power of the court to make declarations. That means the declaration provisions sit within a broader court powers framework rather than operating as the only possible source of relief.

The practical consequence commonly associated with the unfair contract term regime is that an unfair term may be ineffective under the underlying legislation while the rest of the contract may continue if it can operate without that term. Businesses should therefore not assume that a problematic clause will necessarily bring down the whole agreement. Often the more immediate commercial risk is losing the benefit of a clause the business expected to rely on.

The Act does not create a simple filing, registration or notification requirement. Its practical effect is on contract drafting, contract issue processes, and renewal and variation practices.

If your business offers template contracts to smaller counterparties, review those templates before use. Pay particular attention to clauses that heavily favour one side, especially where the contract is presented on a take-it-or-leave-it basis. If your business receives standard form contracts from larger suppliers, customers, landlords or financiers, check whether the contract falls within the regime before assuming the terms are fixed and unavoidable.

Renewals and variations are especially important. The Act says the amendments apply to contracts entered into on or after the commencement of Schedule 1. They do not generally apply to contracts entered into before that date. However, if an older contract is renewed on or after commencement, the amendments apply to the contract as renewed from the renewal day in relation to later conduct. If a term is varied on or after commencement, the amendments apply to the term as varied from the variation day in relation to later conduct.

That means businesses should not treat pre-2016 templates as permanently outside the regime. A renewal can bring the renewed contract within the amended framework, and a variation can bring the varied term within it. Good record keeping around entry dates, renewal dates and variation dates is therefore important.

This Act contains specific exclusions and limits that businesses should check carefully.

Under the ASIC Act amendments, the subdivision does not apply to a contract that is the constitution of a company, managed investment scheme or other kind of body. It also does not apply to a small business contract to which a prescribed law of the Commonwealth, a State or a Territory applies.

Under the CCA amendments, Part 2-3 does not apply to a small business contract to which a prescribed Commonwealth, State or Territory law applies. The legislation also preserves the rule that terms defining the main subject matter of the contract, and terms concerning the upfront price payable, are unaffected in the way set out in the underlying Acts.

Because prescribed laws may change over time, and because this page focuses on the 2015 amending Act itself, businesses should confirm the current position before relying on an exclusion. An exclusion should be checked carefully rather than assumed.

The Act received Royal Assent on 12 November 2015. Sections 1 to 3 commenced on that day.

Schedule 1, which contains the substantive amendments extending unfair contract term protections to small business contracts, commenced on 12 November 2016. The commencement rule states that Schedule 1 starts on the day after the end of the period of 12 months beginning on the day of Royal Assent.

The application provisions then determine how the amendments apply to contracts entered into before and after commencement, including renewals and variations. Contracts entered into on or after commencement are covered if the other statutory tests are met. Earlier contracts are generally not covered unless renewed or varied after commencement, subject to the terms of the application provisions.

This page explains the commencement and application rules in the 2015 Act as enacted. It should be read together with the current consolidated legislation if you need to assess a present-day contract position.

If you are using this page to assess a live contract, do a final verification against the current law. This is especially important because unfair contract term laws may have changed after the 2015 amendments.

Start by identifying whether your contract falls under the CCA or ASIC Act pathway. Then confirm whether the contract is standard form, whether at least one party met the fewer-than-20-employees test at entry, whether the upfront price threshold is satisfied, and whether the contract was entered into, renewed or varied after the commencement date. If the contract involves credit under the ASIC Act pathway, check the special rule that disregards interest when working out upfront price.

Finally, check the current consolidated legislation for any later amendments that may affect coverage, thresholds, remedies, exclusions or consequences. This page is a practical explanation of the 2015 amending Act, not a substitute for checking the current text of the operative legislation.