Key Takeaways

  1. On 9 November 2023 new laws will come into effect prohibiting the proposal, use, application or reliance on unfair contract terms in a standard form consumer or small business contract and introducing pecuniary penalties.
  2. The scope has been extended to capture a range of contracts not previously captured in the regime.
  3. Businesses should take a proactive approach and revise their suite of documents ensuring they are compliant with the new laws.

Background

On 9 November 2022 the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Act) received royal assent with the amendments coming into effect 9 November 2023, giving businesses twelve (12) months to update their contracts.

The Act made amendments to the Competition and Consumer Act 2010 (Cth) (Competition Act) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) increasing competition and consumer penalties and expanding the scope of unfair contract terms (UCT) law regime and introducing separate prohibitions and penalties for UCT.

Under the new law, a term is ‘unfair’ where the term:

  • causes significant imbalance in the party’s rights and obligations;
  • is not necessary to protect the legitimate interests of the party who is disadvantaged by the term; and
  • would cause detriment to a party if it were imposed or relied upon.

The amendments to penalise unfair contract terms in standard form contracts will apply to new standard form contracts that are made at or after the commencement of the Act (9 November 2023).

What are the changes?

Maximum Penalty for Contraventions of the Consumer Law

Under the Act, the maximum penalties for contraventions of Australian Consumer Law (ACL), including those relating to UCT, will increase substantially. The current maximum penalty for corporations, the greater of:

  • $10 million;
  • if the court can determine the value of the benefit obtained, three (3) times the value derived from the relevant breach; or
  • if the value derived from the breach cannot be determined, 10% of annual turnover in the twelve (12) months prior to the breach.

From 9 November 2023 this will increase to the greater of:

  • $50 million; or
  • if the court can determine the value of the benefit obtained, three (3) times the value derived from the relevant breach; or
  • if the value derived from the breach cannot be determined, 30% of the company’s turnover during the period it engaged in the conduct.[1]

For individuals the maximum penalty will increase from $500,000 to $2.5 million.

Unfair Contract Terms – Offences and Remedies

The new changes brought by the Act, include the:

  • prohibition of the proposal, use, application or reliance on UCT in a standard form consumer or small business contract;
  • new civil penalty provisions for breaches of the prohibition of UCT;
  • expansion of the court’s power, to:
    • make orders to void, vary or refuse to enforce part or all of a contract containing UCT;
    • make orders that apply to any existing consumer or small business standard form contract that contains an UCT, or a term that is substantially similar to a term declared to be an UCT by the court; and
    • issue injunctions against a business preventing them from entering contracts containing UCT, or terms substantially similar to UCTs.

Extended Scope

The Act expands the scope of small business contracts to capture contracts previously not caught by the regime.

Currently the UCT protections apply to a small business contract if:

  • one party to the contract employs less than twenty (20) people; and
  • the upfront price payable under the contract does not exceed $300,000.00 or $1 million for contracts with a duration longer than twelve (12) months.

From 9 November 2023, the small business thresholds will be increased to include:

  • a business that has fewer than 100 employees, or
  • has a turnover for the last income year of less than $10 million,

and will apply irrespective of the value of the contract. Accordingly, there will be no contract value threshold for contracts under the ACL.

The Act also clarifies that a contract may still be a standard form contract despite an opportunity:

  • to negotiate changes that are minor or insubstantial in effect;
  • to select a term from a range of options; or
  • for a party to another contract to negotiate terms of the other contract.

This means that an expanded class of small business standard form contracts are captured.

Each unfair clause will be a separate contravention meaning a business can breach the Act multiple times in a contract. A business can also breach these laws multiple times in the same unfair term depending on how many instances the clause was applied.

What do the changes mean for businesses?

We recommend that you take a proactive approach and revise your current contracts, such as supply agreements and trading terms and conditions, to identify any:

  • contracts that now fall within the scope of standard form consumer or small business contracts; and
  • contract terms that may be at risk of being ‘unfair’.

What can we do to help?

ANDE + Co. can help you to further understand your new obligations under the amended legislation.

We can assist in revising and amending your suite of standard contracts, and other contracts used in the course of business, and provide expert legal advice on potential ‘unfair’ terms.

Disclaimer

The information contained in this article is provided as a general guide only and is not intended as specific advice. Information contained in this article may have changed or may no longer be current.

[1] See page 5 of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 Explanatory Memorandum.