For many small supply and manufacturing businesses, securing a contract with a major retailer or distributor is a significant commercial milestone. It can mean volume, credibility and growth. However, it often comes with a non-negotiable “standard form” agreement that shifts disproportionate risk onto the smaller party.

Under Australia’s unfair contract terms (UCT) framework, certain terms in standard form contracts with small businesses may be void if they

  • create a significant imbalance in the parties’ rights and obligations,
  • are not reasonably necessary to protect legitimate interests, and
  • would cause detriment if relied upon.

Recent reforms have strengthened this framework, including the introduction of substantial penalties for businesses that propose or rely on unfair terms. That said, the existence of the legislation does not remove the commercial pressure many small businesses face when presented with one-sided contracts.

In supply and manufacturing arrangements, Rankin Business Lawyers frequently sees

  • Broad indemnities requiring the supplier to indemnify the larger business for wide-ranging claims, sometimes including losses caused by the buyer’s own conduct.
  • One-sided termination rights which can allow the retailer or distributor to cancel orders or terminate at short notice, leaving the supplier with unrecoverable production costs.
  • Disproportionate liability and warranty obligations which can impose open-ended risk on the supplier, even where loss arises from handling, storage or marketing decisions outside their control.
  • IP and branding restrictions which can limit the supplier’s ability to use its own intellectual property or, worse, transferring rights inadvertently.

For small manufacturers with tight margins and upfront production costs, these clauses can have serious consequences: cash flow strain, uninsured liability exposure and long-term commercial disadvantage.

Small businesses should not assume that “standard form” means “non-negotiable.” Even modest amendments can significantly rebalance risk. Early legal review of contracts, clear identification of non-negotiable positions, and a commercial understanding of risk allocation are critical before signing.

The updated UCT framework confers powerful protections, but it is not a substitute for proactive contract management. In supply relationships, particularly where there is a clear imbalance of bargaining power, careful drafting and negotiation remain essential.

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Stacey Brennan
Lawyer