1 April 2021

• Unfair contract terms protections have applied to most small business contracts since November 2016.
• From 5 April 2021, these protections will be extended to include insurance contracts which small businesses enter into or renew, and terms in existing insurance contracts that are varied.
• ASIC will use its powers to take action where we have concerns about insurers using unfair terms in small business insurance contracts in breach of the new protections.

What makes a contract term unfair?

A term in a standard form small business contract is 'unfair' if it:

• would cause a significant imbalance in the parties' rights and obligations arising under the contract
• is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, or
• would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on.

Only a court can make a determination that a contract term is unfair.

Unfair contract terms and small business insurance contracts

Unfair contract terms protections have been extended to include standard form small business insurance contracts entered into or renewed from 5 April 2021. If a term of an existing contract is varied on or after 5 April 2021, the protections will generally apply to that term but not the rest of the contract. This means that the law will protect small businesses from unfair terms in insurance contracts as well as contracts for other products and services.

ASIC will keep liaising with small business representatives to identify harms arising from unfair terms in standard form insurance contracts and will take action where appropriate.

More information

In March 2021, ASIC published the article Are you ready? Laws on unfair contract terms apply to insurance from 5 April 2021, outlining its expectations of insurers.

In October 2020, ASIC released Information sheet 211 Unfair contract term protections for small businesses. It describes how small businesses can challenge a term under the unfair contract terms law in the Australian Securities and Investments Commission Act 2001, what happens if a term is unfair, and what ASIC can do. ASIC also updated Information sheet 210 Unfair contract term protection for consumers.

In March 2018, ASIC released Report 565: Unfair contract terms and small business loans.

The report:

• identifies the types of terms in small business loan contracts that raise concerns under the law
• provides general guidance to lenders with small business borrowers to help them, and
• outlines what factors are relevant in determining if loan contracts are unfair under the Unfair Contract Terms law.

The Australian Competition and Consumer Commission (ACCC)’s website also has useful information on unfair contract terms and small business rights protections.