The Fair Trading Amendment Act 2021 has recently extended and introduced new protections against unfair commercial practices which are important for many businesses to consider whether changes to their standard terms are required. The key changes are:
- extending the existing protections of the ‘unfair contract terms’ regime to standard form “small trade contracts” entered into, varied or renewed on or after 16 August 2022; and
- prohibiting ‘unconscionable conduct’ in trade.
What are “unfair contract terms”?
An unfair contract term is a term that is considered to cause a significant imbalance in the parties contract rights and obligations, is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term and would cause detriment to a party if it were applied, enforced or relied upon.
How is the current law around unfair contract terms expanding?
Unfair contract terms were already prohibited in standard form consumer contracts. The legislative amendments go much further and extend the unfair contract terms regime to standard form “small trade contracts”.
A standard form “small trade contract” is a contract that is not subject to effective negotiation, is between parties engaged in trade, is not a consumer contract and does not comprise or form part of a trading relationship that exceeds or is more likely than not to exceed consideration worth $250,000. The trading relationship is determined by the contract in question and any other contract, current or prospective, between the parties that is on substantially similar terms. This trading relationship first arises when the first contract of the relationship is entered into. The “consideration” may not necessarily be the price paid for goods and services – it could be anything of value in exchange for those goods or services, such as a benefit or promise to confer a benefit or suffer a detriment.
Avoiding unfair contract terms
The new legislation applies to small trade contracts entered into, varied or renewed after 16 August 2022. Businesses should be reviewing their trading relationships to first determine which trading relationships may fall under the annual value threshold. Any standard form contracts related to that trading relationship which the business proposes to enter into, vary or renew should then be carefully reviewed for unfair contract terms.
What is “unconscionable conduct in trade”?
The Government’s intention is for the prohibition to address unconscionable conduct like Australia does, where conduct will be unconscionable if it is “against conscience by reference to the norms of society” (for example, acting honestly, fairly and without deception or unfair pressure). In determining what is unconscionable, the court will consider the statutory factors, which can be summarised as including:
- the relative strengths of the parties’ bargaining positions;
- the extent to which the parties acted in good faith;
- an affected person’s particular characteristics (e.g. literacy);
- any undue pressure or influence, or any unfair tactics;
- whether a trader unreasonably failed to disclose certain aspects disadvantageous to the affected person; and
- if a contract is involved, its terms, the circumstances of its formation and the way it is enforced.
The scope of “unconscionable conduct” in trade is broad. It is not necessary for there to be a contract – the focus is on the conduct. It is not necessary for the conduct to be a pattern – it can be one-off conduct. It is not necessary for the conduct to be directed towards a consumer or for an individual to actually be disadvantaged by the conduct – it can be conduct towards a business or conduct where a type of person is simply likely to be disadvantaged.
What can we do to avoid prosecution for unconscionable conduct?
Businesses should now be reviewing their policies, procedures, staff training, commercial practices and tactics, and contracting practices, as well as the terms of their contracts, against societal norms, industry codes, and standards of good faith, fairness, honesty, reasonableness and transparency, and identifying particular areas of risk (for example, where conduct training would be prudent). Special consideration should be given to whether businesses deal with vulnerable counterparties.
Further assistance
This is a brief overview of some, but not all, of the recent amendments to the Fair Trading Act 1986 and should not be relied on in place of proper legal advice. For tailored legal advice about how the recent amendments may impact your business, please contact our Commercial Team.