Legal advice for a business already trading

Unfair contract terms are now a penalty risk

This is the change most small businesses have missed. Since 9 November 2023 it is not merely that an unfair term in a standard form contract is void. Proposing, using or relying on one contravenes the Australian Consumer Law and attracts civil penalties.

The protection also covers far more contracts than it used to. A small business contract is now caught where one party has fewer than 100 employees or annual turnover under $10 million, which sweeps in a very large share of Australian business to business contracting. There is also a presumption that a contract is standard form unless the party who wrote it proves otherwise.

A term is unfair if it does three things together: it causes a significant imbalance in the parties' rights and obligations, it is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and it would cause detriment if relied on. Typical offenders are unilateral variation rights, automatic renewal with a long cancellation window, one-sided termination, one-sided indemnities, and clauses that make the customer liable for things outside their control.

Maximum penalties for Australian Consumer Law contraventions by a corporation are very large, calculated as the greater of a fixed sum, three times the benefit obtained, or a percentage of adjusted turnover. Do not rely on any figure you read online, including this page. Check the current amount with the ACCC.

The security you probably have not registered

If you supply goods on credit with a retention of title clause, hire out equipment, consign stock, or lease plant, the Personal Property Securities Act 2009 (Cth) governs whether your interest survives the customer's insolvency. An unregistered interest usually does not.

Two practical points. Registration has to be against the correct grantor identifier, which for a company is its ACN and for an individual trading through a trust is the trustee, and a mistake here can invalidate the registration entirely. Second, purchase money security interests only get their priority if they are registered inside short statutory windows, so registration has to be part of your account opening process rather than something done annually.

Run a PPSR search on your own business too. Stale registrations by former financiers can hold up a sale or a refinance, and they take time to remove.

Intellectual property that is not actually yours

• Your business name is not your brand. An ASIC business name registration confers no ownership. A registered trade mark with IP Australia does.
• Your logo may belong to your designer. Copyright in a commissioned work generally stays with the creator unless it is assigned in writing. Same for your website, your photography and your custom software.
• Your contractors own what they make. Unlike employees, a contractor keeps the intellectual property in what they create unless the agreement assigns it to you. See contractor agreements.
• Your domain is a licence, not property. Check who is listed as registrant. It is often a former marketing agency.
• Your confidential information is only protected if you treat it that way. See confidentiality agreements.

Getting paid, and getting out of contracts

Debt recovery is a documents problem before it is a court problem. If your terms of trade were properly incorporated, if a director gave a guarantee on the credit application, and if you can prove delivery and acceptance, most debts resolve at the letter of demand stage. If none of that exists, you are litigating about whether there was a contract at all.

Against a company, a statutory demand under section 459E of the Corporations Act 2001 (Cth) is a powerful tool where the debt is genuinely undisputed and above the statutory minimum. The company has 21 days to pay or apply to set the demand aside, and failure creates a presumption of insolvency. Used against a debt that is actually disputed, it is an abuse of process and you will pay costs. See commercial dispute resolution.

On the other side, if you want out of a contract, read the termination clause before you stop performing. Walking away from a contract you were not entitled to terminate turns you from the innocent party into the party in breach, and that reversal is the most common self-inflicted wound in commercial disputes.