Unfair Contract Terms legislation now in effect!

A term of a “small business contract” as defined, is liable to be declared void, if the term is unfair, and the contract is a “standard form contract”.
A term will be considered unfair if it meets all of the following criteria:

(a) It would cause a significant imbalance in the parties’ rights and obligations arising under the contract

(b) It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term

(c) It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on

Implications of the Reform

This new regime has the potential to render unenforceable, a number of clauses common in contracts in the construction industry. For example:

(a) Terms that permit a party to unilaterally vary “the characteristics of the goods or services to be supplied” under a contract as raised as an example of a potentially unfair term in the ACL

(b) Time bars may potentially fall foul of the unfair term regime as they tend to be imposed on one party to the contract (creating an imbalance) and, if relied upon, cause a detriment by restraining a party’s entitlement to make claims for time or money

(c) Liquidated damages clauses which are not considered penal on the test in Andrews v ANZ, may nevertheless be rendered unenforceable as unfair because the standard required to be considered unfair is arguably lower than that to be considered penal 
See: Lexology

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