Fair Trading Act Amendments: Terms of Trade and Franchise Changes To Be Made

1/6/2022

Certain provisions of the Fair Trading Amendment Act, 2021, amending the Fair Trading Act, 1986 are to come into effect on 16 August 2022. One of the amendments which has potentially far reaching effects is the power given to Courts to find terms in a “standard form small trade contracts” as unfair. If a term is found to be unfair, it prevents the inclusion of the term and it cannot be applied, enforced or relied on.

Read on to find out what this all means, and how it might impact you and your business...

What is a "standard form" contract?

A Court may determine that a contract in which the terms have not been subject to effective negotiation between the parties is a standard form contract. This is typical of predetermined b2b or b2c terms of trade, terms of use or franchise agreements.

What is a "small trade" contract?

The key concepts as defined are set out below:

Small Trade Contract: A small trade contract is when each party to it is engaged in trade, it is not a consumer contract and it does not comprise or form part of a trading relationship that exceeds the annual threshold when the relationship first arises.
Trading Relationship: A trading relationship first arises when the first or only contract of the relationship is entered into.
Annual Threshold: A trading relationship exceeds the annual threshold if from when the relationship first arises: -
- it includes a transparent term for consideration of $250,000.00 (including GST) or more to be paid under the relationship within a 12-month period; or
- consideration worth $250,000.00 (including GST) or more is more likely than not to become payable under the relationship within a 12-month period.

When is a term "unfair"?

A term is "unfair" if the Court is satisfied that the term:

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 applied, enforced, or relied on.

What is the effect? What does this all mean?

A number of trade relationships will potentially fall within the ambit of the changes. Most noticeably franchise agreements and terms of trade. Franchise agreements are notorious for having what some may say are unbalanced terms. The provisions of the Act apply to agreements concluded after 16 August 2022 or when the terms are varied (which is common in franchise agreements). An amendment to a franchise manual for example may also be considered a variation of the agreement.

A number of agreement terms will need to be revised. A more balanced, substantiated and nuanced approach will need to be taken to mitigate the risk of a term being declared unfair.

Contact our offices for advice on and a review of your current agreements. Where the provisions of the Act are relevant and may impact on your current contracts we will assist by taking steps to understand your unique business, practices and risks so as to ensure your key interests are protected and risks mitigated in as even-handed a manner practicable.

We look forward to talking with you, contact us today.