Upcoming Changes to the Unfair Contract Terms Regime
Business Law: 20 July 2023
Author: Ralph Davies, Lawyer - Our People
On 9 November 2022 the Federal Government passed the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (UCT Bill) which will substantially change the unfair contract terms regime in the Australian Consumer Law sphere.
If you wish to know what the current rules are, see our ‘Unfair Contract Term or Bad Deal’ article
Transition Period
Despite passing last year, the UCT Bill provided businesses with a 12-month transition window to prepare for the legislative amendment. Once in effect, the UCT Bill will impose new penalties and expand the class of businesses and contracts that will be captured by the unfair contract terms regime.
New Penalties
At present, if a Court finds a contract term is unfair pursuant to section 24 of Australian Consumer Law, Schedule 2 of the Competition and Consumer Act 2010 (ACL), the term will be declared void and no penalty will be imposed on the party in breach. However, the new UCT Bill will introduce penalties for:
- Entering into standard form consumer or small business contract that contains an unfair contract term; and/or
- Applying, relying or purporting to apply or rely on, an unfair contract term contained in a standard form consumer of small business contract.
These pecuniary penalties can be imposed for each contravention of the ACL, therefore the accumulation of every unfair clause in a contract can attract a harsh penalty.
The reform will concurrently raise new maximum penalties for breaches of the ACL of $2.5 million for individuals, and for corporations the greater of:
- $50 million;
- Three times the benefit obtained and reasonably attributable to the conduct; or
- 30% of the corporation’s adjusted turnover during the breach turnover period.
Courts will also have access to a broader range of penalties available. For example, Courts can make orders for the whole contract (rather than declaring void the specific unfair term as is currently the case), make orders to any existing contracts that are substantially similar to the one declared unfair, and issue injunctions with respect to future contracts (thereby restricting the party in breach from using similar terms with any future consumers).
More Businesses Captured
The UCT Bill also expands the scope of ‘small business’ and ‘standard form’ contracts. A small business now can include businesses that employ fewer than 100 persons (previously 20) and have an annual turnover during the previous financial year of less than $10 million. This will significantly increase the scope of businesses that can be captured by the ACL.
Broader Standard Form Contract Definition
Standard form contracts are currently defined as a contract where negotiation is not an option, on a ‘take it or leave it’ basis. The UCT Bill will expand this definition, and a contract may nevertheless be considered ‘standard form’ even where there is opportunity for a party to:
- negotiate terms to the contact (albeit minor or insubstantial terms);
- select a term for the duration of the contract from a range of options; and
- meaningfully negotiate terms of another contract with the same party.
Commission’s Active Enforcement
In anticipation of the changes noted above, the Australian Competition and Consumer Commission has indicated that they will be prioritizing the enforcement of the new regime, expecting businesses to comply with their new obligations. In the absence of such compliance, significant penalties will follow.
Therefore, it is an excellent time to review any standard form contracts that may contain unfair terms before these changes come into effect in three months.