Hones News

Expansion of Unfair Contract Protection to Small Business Contracts

Businesses and lenders beware – expansion of unfair contract protection to small business contracts

On 12 November 2015 legislation was passed which extends the unfair contract protections to include small business contracts (see the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015). This will affect provisions of the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001. The changes take effect from 12 November 2016.

Will any contract be covered?

  • No. The changes to the ACL will apply to standard form small business contracts if:
    the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
  • at the time of entering into the contract, at least one party is a business that
    employs less than 20 people; and
  • the upfront price payable under the contract is no more than $300,000 or if the contract is for more than 12 months it is for no more than $1 million.

What is a standard form contract?

A standard form contract is one where there is no negotiation between the parties and it is provided on the basis that it is either accepted in whole or not all.

A contract will be presumed to be a standard form contract if a business alleges it is one and it will then be up to the other party to prove otherwise.

What is an unfair term?

A term is unfair if it:

  • “would cause a significant imbalance in the parties’ rights and obligations arising under the contract”; and
  • “is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term”; and
  • “would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on”. (see section 24 of the ACL)

Terms that may be deemed unfair could include:

  • a term that permits one party (but not another party) to avoid or limit performance of the contract;
  • a term that permits one party (but not another party) to terminate the contract;
  • a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract.

Further examples of potentially unfair terms can be found in section 25 of the ACL but it is by no means an exhaustive list.

What does this all mean?

If a court or tribunal determines that a standard form small business contract includes an unfair term then that term will be void and not binding on the parties. The balance of the contract will continue to operate to the extent that it can without the unfair term.

What you can do to become ready

If you haven’t already done so, it is time to start reviewing any standard form contracts you have that may be considered a small business contract and take steps to ensure they comply with the new legislation.

Case of McCudden v Cowra Shire Council

McCudden v Cowra Shire Council

Mr McCudden has been the occupier of land in the Cowra Council area and for more than 4 years he has conducted a shelter for abandoned and unwanted cats on the land on a non-commercial basis. Complaints have been made to the Council by the neighbours. An inspection revealed that the number of cats reported to have been kept on the land range between 174 and 200.

On 6 August 2015 the Council issued an order to Mr McCudden under s124 of the Local Government Act 1993 requiring that no more than 33 cats be kept on the land at any one time and the order also sought to constrain the manner in which the cats were to be kept on the land. Mr McCudden appealed to the Court in respect of Council’s order pursuant to s180 of the Local Government Act and then sought by way of Notice of Motion the determination of a number of questions in relation to the validity of the Order and the jurisdiction of the court to hear the appeal.

The order stated in Schedule A:

  1. Reason why this order has been given:
    1. you are the occupier of the Premises;
    2. cats are being kept on the Premises in inappropriate numbers and inappropriate conditions; and
    3. the welfare of the cats is being significantly compromised as a consequence of:
      1. the cats being kept in groups that are excessively large and therefore socially dysfunctional,
      2. the cats not having appropriate space and adequate resources to display normal and preferred behaviours, and
      3. insufficient human resources (carers) being available to properly care for the cats.

The Applicant argued that there was only one reason stated by the Council for the giving of the order, namely that set out in sub-paragraph 1c of Schedule A which is directed to the welfare of cats. The argument relied upon by the Applicant was that the order should be construed by reference to the ordinary canons of construction as they apply to the interpretation of subordinate legislation.

The Court accepted that the principles of construction applicable to subordinate legislation are appropriately applied to the proper construction of a statutory notice or order of the kind before the Court as that an order given under s124 falls within the definition of an instrument as defined in s3 of the Interpretation Act 1987 (NSW). His Honour found that:

  1. the Applicant’s interpretation failed to accommodate the principle that the order is not to be interpreted as if it was drafted with the precise language expected of a statute,
  2. the order is not required to be so drafted in order to have legal effect, and
  3. that the consequences of accepting that the order given by the Council is an “instrument” within the meaning of the Interpretation Act has the result that the proper construction of such an instrument necessitates greater regard to practical considerations and it is not appropriate to construe such an instrument by subjecting its language and structure to that applicable to the interpretation of an Act of Parliament. His Honour cited with approval the remarks of Stein JA in J & J O’Brien Pty Ltd v South Sydney City Council 121 LGERA 223 where his Honour identified the necessity for the order to be read as a whole for the purpose of discerning the reasons “for the exercise of the council’s statutory discretions”.

At paragraph 48 of the judgment of the Court of Appeal there is a reference to the decision of the Land & Environment Court in Van Haasteren v South Sydney Council 109 LGERA 252 and it was observed to be that, if that decision is “authority for a proposition of general application, it goes too far and should not be accepted without qualification in cases where the statement of the circumstances enlivening the power is sufficient without more to make plain to the recipient the basis and reason for the decision to issue the order.”

Craig J applied the decision of O’Brien and found that the reasons, in accordance with the decision of the Land & Environment Court in Shannon v Lithgow City Council (1995) 88 LGERA 253 with respect to an order given in accordance with Order No 18 under s 124 of the Local Government Act, requiring the occupier of premises “to reduce the number of dogs being kept on the premises to an appropriate number of four (4) dogs”, in context, indicated sufficient reason for the purpose of s136 of the Act. The context considered were the terms of the order as a whole. His Honour’s conclusion was that “reading the Council’s Order as a whole and doing so in a manner that has “regard to more practical considerations”, one can adequately discern for the purpose of s136 of the Local Government Act, reasons why both the numbers of cats and conditions in which they were being kept were inappropriate and how the welfare of cats, reduced in number to 33, could appropriately be addressed.”

The argument submitted by the Applicant that, having regard to the scope, purpose and object of the power being exercised by the Council, together with the meaning and context of Order No 18 and s 124, the welfare of cats cannot be a relevant consideration and that therefore the order was beyond the power of the Council.

The Court analysed s7, s8 and ss21-23 of the Local Government Act and, in particular made reference to s8(1) whereby Council may properly “manage, develop, protect, restore, enhance or conserve the environment of the area” for which the Council is responsible and s7(e) of the Local Government Act, which requires that a Council, when carrying out its responsibilities, do so having regard to “the principles of ecologically sustainable development”, an element of Council’s charter under s 8 of the Local Government Act. His Honour found that on examination of the Environmental Planning and Assessment Act and the Council’s role and functions thereunder, there was no reason to believe that the word “Environment” would be used differently in the Local Government Act and the EPA Act or the Protection of the Environment Administration Act and, for those reasons, the welfare of animals was relevant to a Council’s consideration when determining to give the order that it did under s124 of the Local Government Act.

The Applicant also contended that the reasons given were inadequate as the reasons required by s136 must make intelligible the true basis for the decision to give the order relying on the decision of the Land & Environment Court in Stutchbury v Pittwater Council 105 LGERA. However His Honour found that the reasoning in Stutchbury could not stand in the face of the decision of the Court of Appeal in O’Brien and that Stutchbury is inconsistent with the decision in O’Brien.

Stutchbury, Van Haasteren and Lederer & Ors v Sydney City Council [2001] NSWLEC 272 found that the requirement for reasons can never be satisfied by statement of the circumstances enlivening the power to give an order under a statutory provision equivalent to s124. His Honour found that the reasons in the order given to Mr McCudden were sufficient and declined to follow Stutchbury, Van Haasteren and Lederer.

His Honour found that an order given under s124 of the Local Government Act which apparently meets the requirements for giving that order under the table to the section, but in respect of which no reasons sufficient to satisfy the requirements of s136 have been included in or accompany that order, is not, on that account, a nullity.

The Court also found that an order, so given, persists so as to found the jurisdiction of the Court to hear and depose of an appeal to the Court.

His Honour also found that even if the absence of reasons is assumed, the order is not, on that account, invalid and retains its force sufficient to ground an appeal.

Strata Report – New Laws

Both the Strata Schemes Management Act 2015 No. 50 and the Strata Schemes Development Act 2015 No. 51 were assented to on 5 November 2015. These bills have far reaching impact on unit owners and developers dealing with unit owners. Hones Lawyers are presently preparing an outline template in for use by owners and developers. The full details and forms will not be completed until the regulations of those acts have been finalised.

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Group Sales by Multiple Owners

We have been approached by groups of property owners who have decided that the sale of a number of adjoining lots would yield far better return than the sale of individual lots. We have prepared templates and agreements for this form of sale. If you are thinking of this type of arrangement, then you should see the expert team at Hones Lawyers who can prepare documents and give you advice and assistance on both the commercial and the planning aspects of your matter.

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Introducing: Susan Hill

Introducing Susan Hill

Introducing Susan Hill as the new Accredited Specialist in Local Government and Planning Law at Hones Lawyers.

Did you know that crossing the Sydney Harbour Bridge could qualify as a solicitor’s professional ‘sea-change’?

That’s precisely what happened to Susan Hill because, on 1 July, she joined the growing team at Hones Lawyers.
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Hones Lawyers Autumn Update

Hones Lawyers Autumn Update

Introducing Tony Moody as the new Special Counsel at Hones Lawyers.

We are ecstatic to introduce a new member to the team, Tony Moody, as Special Counsel. He joins us with ample experience in Town Planning and Planning Law, with a flair for major developments and a taste for golfing and travelling.

Tony has dual qualifications, with a Bachelor of Town Planning from the University of NSW and a Bachelor of Laws degree (Hons) from UTS including a High Distinction in Environmental Studies.
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