PwC International Business Reorganisations Network Monthly Legal Update Edition 12, Deember 2016 Contents PriewaterhouseCoopers (Australia) ontrats with small business as potentially unfair 1 Welome Welome to the twelfth edition of the PwC International Business Reorganisations (IBR) Network Monthly Legal Update for 2016. The PwC IBR Network provides legal servies to assist multinational organisations with their rossborder reorganisations. We fous on post-deal integration, pre-transation separation and arve outs, single entity projets, and legal entity rationalisation and simplifiation as well as general business and orporate and ommerial struturing. Eah month our global legal network brings you insights and updates on key legal issues and developments relevant to multinational organisations. We hope that you will find this publiation helpful, and we look forward to hearing from you. In this issue In our Deember 2016 issue PriewaterhouseCoopers (Australia) onsiders new laws that reently ame into effet in Australia regarding unfair terms in small businesses ontrats. Contat us For your global ontat and more information on PwC s IBR servies, please ontat: Rihard Edmundson Partner and Head of International Business Reorganisations, London +44 (0) 20 7212 1512 rihard.j.edmundson@pwlegal.o.uk PwC International Business Reorganisations Network Monthly Legal Update Edition 12, Deember 2016
PriewaterhouseCoopers (Australia) ACCC Report highlights ommon terms in ontrats with small business as potentially unfair At a glane The new law against unfair terms in ontrats with small businesses beame operational on 12 November 2016. The Australian Competition and Consumer Commission s (ACCC) reent report, Unfair terms in small business ontrats, (ACCC Report) has identified a range of ontratual terms used aross seven industries that the ACCC onsidered would be likely to ause onern under the new law (e.g. unilateral variation lauses). With the new law having been identified by the ACCC as an enforement priority, we enourage any business whih has standard form ontrats with a small business to urgently review their ontrats, to the extent that they have not already done so, for ompliane with the new law. Ultimately, it will be for a ourt or tribunal (not the ACCC) to determine if a term is unfair, and onsequently void. In detail Reap on extension of unfair ontrat terms regime to small business The unfair ontrat terms provisions of the ACL now apply to a standard form ontrat with a small business entered into or renewed on or after 12 November 2016. If a ontrat is varied on or after 12 November 2016, the law will apply to the varied terms. A summary of the new law an be found in our earlier LegalTalk Alert Government enats unfair ontrat terms legislation to protet small business dated 23 Otober 2015. To reap, ontrats overed by the new law inlude those between businesses where: a one of the businesses employs less than 20 people; and b the ontrat is worth up to $300,000 in a single year; or $1 million if the ontrat runs for more than 12 months. A term will be unfair if it auses a signifiant imbalane in the parties' rights and obligations under the ontrat, is not reasonably neessary to protet the legitimate interests of the party who would benefit from the term, and would ause detriment to a party if it were relied on. The law sets out examples of ontrat terms that may be unfair, inluding: a terms that enable one party (but not another) to avoid or limit their obligations under the ontrat; b terms that enable one party (but not another) to terminate the ontrat; terms that penalise one party (but not another) for breahing or terminating the ontrat; and d terms that enable one party (but not another) to vary the terms of the ontrat. PwC 1
Only a ourt or tribunal (not the ACCC) an deide that a term is unfair. If a ourt or tribunal finds that a term is unfair, the term will be void i.e. it is not binding on the parties. The rest of the ontrat will ontinue to bind the parties to the extent it is apable of operating without the unfair term. ACCC Report on potentially unfair terms The ACCC Report details ommon terms of onern identified by the ACCC following its review of 46 ontrats in seven industries, inluding advertising, teleommuniations, retail leasing, independent ontrating, franhising, waste management, and agriulture. After identifying a range of ontrat terms of onern, the ACCC engaged with businesses about amending or removing the problemati terms, resulting in a number of businesses making hanges to their small business standard form ontrats. The ACCC identified that the three most ommon terms likely to ause onern were terms that allow the ontrat provider: a to unilaterally vary all terms (or at least those that have a signifiant bearing on the ontratual arrangement, or whih ould ause detriment if varied) in an unonstrained manner; b potentially broad and unreasonable powers to protet themselves against loss or damage at the expense of the small business by imposing broad indemnities or exessive limit on their liabilities; and an unreasonable ability to anel or end an agreement as it suits them. Interestingly, some of the other terms identified by the ACCC as being potentially unfair may ome as a more of a surprise to some businesses, inluding: a entire agreement lauses whih state that the ontrat supersedes all previous agreements, undertakings and ommuniations. The ACCC was onerned that suh lauses ould mislead a small business where they may have additional rights at law, e.g. based on pre-ontratual representations made by the larger business; and b automati renewal lauses, e.g. allowing the agreement to be renewed every year on urrent terms. While automati renewal lauses are not neessarily unfair, the ACCC onsidered that they ould be of onern if they are not adequately dislosed, if no notie is provided that a ontrat is about to renew, if the supplier an hange the ut-off date for anellation of the renewal, or if the ustomer will inur large early termination harges if they anel the ontrat after renewal. Other potentially unfair terms identified by the ACCC in speifi industries inluded exessive early termination harges (teleommuniations), exessive liquidated damages lauses and unreasonable restraints of trade (franhising), unrestrited rights to reover osts and rights to property without notie at the expiry of a lease (retail leasing), unrestrited rights to remove advertisements (advertising), and terms allowing unrestrited aess to property (agriulture). The takeaway While the ACCC Report provides guidane on ommon terms likely to raise onerns in speifi industries, it also serves as general guidane to businesses in other industries about the kinds of terms that the ACCC are likely to onsider to be unfair though ultimately this is for a ourt or tribunal to deide. The new law has been identified by the ACCC as an enforement priority. We enourage any business whih has standard form ontrats with small business to urgently review their ontrats, to the extent that they have not already done so, for ompliane with the new law. In partiular, businesses should: a onsider whether they have any standard form ontrats with small business; b review their relevant ontrats to identify any ontratual terms whih are suseptible to being delared void for unfairness if hallenged; and if the ontrat does ontain terms that are potentially suseptible to hallenge, onsider if they should be amended or removed, having regard to: i whether the ontrat term reates an imbalane of obligations between the parties; ii whether the term is neessary to protet a legitimate business interest; and iii whether it auses detriment to the other party if relied upon. PwC 2
Who to ontat For more information, please ontat: Tony O Malley Partner, Sydney +61 (2) 8266 3015 tony.omalley@pw.om Murray Deakin Partner, Sydney +61 (2) 8266 2448 murray.deakin@pw.om PwC 3
www.pw.om This publiation has been prepared for general guidane on matters of interest only, and does not onstitute professional advie. You should not at upon the information ontained in this publiation without obtaining speifi professional advie. No representation or warranty (express or implied) is given as to the auray or ompleteness of the information ontained in this publiation and, to the extent permitted by law, PwC does not aept or assume any liability, responsibility or duty of are for any onsequenes of you or anyone else ating, or refraining to at, in reliane on the information ontained in this publiation or for any deision based on it. 2016 PwC. All rights reserved. PwC refers to the PriewaterhouseCoopers global network and/or one or more of its member firms, eah of whih is a separate legal entity. Please see www.pw.om/struture for further details.