Australian contract laws are complex and can be unforgiving. Here are four key things you need to know that could shed some light on Australian contract laws:
1: A Contract Requires Four Key Elements
Under Australian law, a contract needs to contain the following four distinct elements to be valid and binding:
- Offer – A clearly stated offer from one organisation (or person) to another organisation or person.
- Acceptance – The offer must be clearly accepted by the recipient of the offer, and it should be clear what they are accepting (ie the terms of the contract) . If one side makes a counteroffer through negotiation that does not constitute acceptance.
- Consideration – A contract involves the parties exchanging an item of value (the consideration). This could be money, resources, time, or other commitments.
- Intention – The contract should make it clear that the two parties intend to enter into a legally-binding agreement.
You only have a contract if all four of these elements are included!
2: Your Contract May Be Invalid If The Other Party Is Unsuitable
When you enter into another contract with another party, it is your responsibility to check who they are and whether they are suitable. If it later turns out that the business you’re dealing with is bankrupt, or the individual is untrustworthy, your contract might be worth less than the paper it’s written on.
For example, a bankrupt business may not be able to enter into a legal contract with you, nor would a 17 year old be able to enter into a contract. For this reason, it is essential that you do your due diligence. Who is the other party? Are they capable and suitable for the contract you are entering into?
This may not sound like a big deal, but think about how may minors under 18 use websites (like Facebook, Twitter, WhatsApp etc) and the website purports to bind the minor to their website terms and conditions. They could be in for a rude shock if the relevant website tried to enforce those contract terms.
3: Most Contracts Don’t Have To Be In Writing (But They Should Be)
A contract doesn’t need to be in writing to be legal; in most scenarios, a verbal contract is also legally binding. There are a few exceptions: credit contracts, contracts concerning land, and unsolicited consumer agreements, among others – but these are the exceptions rather than the rule.
However, that does not mean you should rely on verbal agreements. An oral contract is much harder to prove (unless recorded) as there is no definitive version to go back to – it’s your word against theirs.
If the other party is not willing to sign a written contract, this is a clear warning sign that they may be considering backing out of the agreement (or want to keep the option to do so later). Don’t let this slide: a written contract is the only way both parties can ensure there is a clear agreement with no room for misunderstanding.
4: Small Businesses Have Some Protection From Unfair Contracts
In 2016, the law changed to help protect small businesses (those with fewer than 20 employees) when entering into standard form contracts (a contract that is offered as-is and cannot be negotiated or changed) up to the value of $300,000, or $1,000,000 for longer contracts (12 months plus).
In the past, larger businesses have used this practice to enter into unfair agreements with smaller businesses. These contracts can sometimes include terms that cause harm to the small business or that are completely unnecessary.
Under the new law, a court can find a term unfair and force it to be removed from the contract (the rest of the contract is still valid).
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We work with contracts all day, every day. We’re experts at drafting, reviewing, amending and negotiating business contracts. If you’ve got a business contract, you need help with, please contact our team today.
