March 18, 2016

Australia’s ‘Small Business’ Law Makes Fairness a Touchstone

Penny Ward, Baker & McKenzie

A new Australian law designed to protect small businesses from onerous contractual terms is expected to affect franchise agreements from 2016 forward. The new law is aimed at all “small” business standard form contracts and is not specifically directed at franchising. Nevertheless, franchise agreements are expected to be impacted more than most. The Australian Competition and Consumer Commission (ACCC) has already announced that the franchising sector will be a priority for its compliance and enforcement activities under this new law.

In contrast with the existing law on good faith, this new law targets the terms of the agreement itself, not the manner of their exercise.

Extending Consumer Principlesto Businesses

Australia’s Competition and Consumer Act 2010 currently includes provisions that void “unfair” terms in contracts for the supply of goods or services to individuals predominantly for their personal use or consumption. To date, the law has been limited to the “business to consumer” context, but political pressure has mounted in recent times to expand the protection from consumers to cover “small” business.

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 passed through Parliament on October 20, 2015, and will extend the existing unfair terms provisions of the Competition and Consumer Act 2010 to “small” business contracts. It will apply to contracts entered into or renewed on or after November 12, 2016, and to all variations or extensions of agreements entered into before this date that will take effect after this date.

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Penny Ward, Baker & McKenzie