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Unfair Contracts and What to do About Them

Contracts are the life-blood of any business. Just like the human body, if the blood is out of balance, the body is sick. If you don’t have good contracts in place you can find yourself in circumstances that might strangle your business.

Gone are the days when a contract was sealed with a smile and a handshake. For years, supplying or receiving goods and services have been confirmed by a signed contract. This usually comes with many Terms and Conditions (T&Cs) that are weighted in favour of the bigger party. If something goes wrong, the larger business has more time and resources to allocate to a dispute, leaving the smaller business at a distinct disadvantage, even when it comes to negotiating T&Cs in the first place. The terms can be onerous and can cause financial stress. These sorts of terms are written into an unfair contract.

Examples of unfair contracts terms are ones that allow one party – but not the other – to avoid or limit performance of the contract, to vary the terms of the contract or to terminate the contract. An unfair contract will penalise one party – but not another party – for breach or termination of a contract and limit one party's right to sue the other party.

When considering the goods and services you have in your business, think also of intangibles such as IT, telecommunications, finances and utilities. Think of the big players in these industries. Would your business survive in a dispute with one of them? How about more than one?

The good news is that from 12 November 2016, the new laws dealing with Unfair Contract Terms for small business will give you power to negotiate fair terms. On 20 October 2015, the Federal Government passed the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015. What this means is that the current unfair contract protections that consumers currently have will now apply to small businesses as well.

The new laws also apply to contracts entered into before 12 November 2016. If they are renewed or a term is varied after 12 November 2016, the amendments apply from the date that it is renewed, or to the term is varied.

If a term is found to be unfair, it will be void, that is, it will not be binding. The rest of the terms in the contract will continue to be binding if they are capable of operating without the unfair term. Only a court or a tribunal can determine whether a term is unfair.

But why be involved in court proceedings? You don’t even need to wait until November. How is a large business going to deny you equal terms when the feeling in the marketplace today is that both parties should have rights that are evenly balanced?

If you have a contract you want to negotiate, why not start now?

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