New Fair Trading Act provisions spark need to review small trade contracts

The Fair Trading Amendment Bill received Royal Assent on 16 August 2021 and is now the Fair Trading Amendment Act 2021 (Amendment Act).  The Amendment Act amends the Fair Trading Act 1986 (FTA), with some of the key changes being the introduction of a new prohibition on unconscionable conduct in trade, and an extension of the FTA’s current unfair contract term regime to ‘small trade contracts’.  These changes will come into force on 16 August 2022, providing businesses with a one-year window to adjust to the amendments.  We elaborate below.

Prohibition on Unconscionable Conduct

The Amendment Act introduces a prohibition on any person in trade engaging in conduct that is unconscionable.  While existing provisions under the FTA capture certain unconscionable conduct, the new prohibition acts as a safety net to capture unconscionable conduct that occurs in trade and may not have previously been caught. 

To assess whether a person’s conduct is unconscionable, the Amendment Act provides certain matters for the Court to consider.  These include:

• the relative bargaining power of the parties;
• the circumstances and characteristics of the affected party;
• if there was unfair pressure or tactics; and
• if there is a contract, the terms, circumstances and form of such contract.

The Amendment Act is clear that unconscionable conduct may arise whether or not there is a pattern or system of unconscionable conduct, a particular individual can be identified as disadvantaged, or a contract was entered into.

Any person found to be engaged in unconscionable conduct in trade commits an offence and may be liable to a fine not exceeding $200,000 for an individual or a fine not exceeding $600,000 for a company.

Unfair Contract Terms in Small Trade Contracts

As a result of the Amendment Act, the protections against unfair contract terms for standard form consumer contracts have been extended to include standard form ‘small trade contracts’.

A ‘standard form contract’ is defined as a contract where the terms of the contract have not been subject to effective negotiation between the parties.  In a business-to-business context, these are ‘take it or leave it’ contracts typically found in supply chains and the like.

‘Small trade contracts’ are defined in the Amendment Act as contracts where each party is engaged in trade, it is not a consumer contract, and it does not form part of a trading relationship which exceeds an annual $250,000 (including GST, if applicable) value threshold when the relationship first arises.           

We have previously reported on unfair contract terms here. However, to recap, an unfair contract term is a term that:

• would cause a significant imbalance in the parties’ rights and obligations under the contract;
• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
• would cause detriment to a party if it were applied, enforced, or relied on.

The FTA gives the following examples of terms that may be considered to be unfair:

• a term that that allows one party (but not another) to terminate the contract;
• a term that permits one party (but not the other) to vary the terms of the contract; and
• a term that allows one party to assign the contract to the detriment of another without that party’s consent

If a term is found to be unfair, the business may not be able to enforce or rely on those term(s) in the future without attracting penalties.

Implications for businesses

While these changes to the FTA will not be in force for another year, we suggest that businesses use this time to understand their new obligations and amend their current trading terms and practices if required.                       

If you have any questions about the extension of the unfair contract term regime and it how may impact your business, please get in touch with Sarah Gibbs or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.