From 9 November 2023, Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act), made Unfair Contract Terms (UCTs) illegal, attracting substantial penalties under the Competition and Consumer Act 2010 (Cth) and the ASIC Act 2001 (Cth), with each unfair term forming a separate contravention.
The UCTs apply to supply of goods or services or sale or grant of an interest in land.
Clients may be impacted by the new laws, namely:
1. Increased penalties
The maximum penalty for breaches:
for a body corporate – the greater of: (i) $50 million; (ii) x3 the value of the benefit obtained and that is reasonably attributable to the breach, if that can be determined; and (iii) if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (i.e., over the period the breach occurred, with a minimum of 12 months)
for an individual - $2,500,000
2. UCTs are illegal and attract pecuniary penalties
A person is prohibited from making a contract with a UCT (if the UCT was proposed by that person) and prohibited from applying or relying on (or purporting to apply or rely on) a UCT. Each UCT contained in a contract is a separate contravention.
3. Broader definition of small business
The UCT regime applies to standard form contracts with consumers and small businesses. Small business can rely on UCT protections if the small business either employ fewer than 100 people or have a turnover of less than $10 million for the previous income year. Under the ASIC Act, the UCT regime will only apply to a small business contract if the upfront price payable (excluding interest) for the contract is $5 million or less.
Under the ACL, the monetary contract threshold has been entirely removed. Businesses that engage suppliers using standard form contracts need to be aware that any suppliers with fewer than 100 employees will now be protected as ‘small businesses’ under the UCT regime.
4. Changes to assessment of ‘standard form contracts’
The Act clarifies that a Court should not consider certain factors when assessing whether a contract is a ‘standard form contract’. A Court must not consider whether a party had the opportunity to negotiate minor changes, whether it had the opportunity to select a term from a range of options or whether a party to another contract was given the opportunity to negotiate its terms.
Businesses that previously categorised contracts as not ‘standard form’ (and therefore not subject to the UCT regime) based on these factors, will need to revisit this classification.
5. More Court powers
The Act gives greater power to the Court including, for example, the power to injunct a person from making future contracts that rely on the UCT or from applying or relying on an UCT in any existing contract. In addition, the Court is empowered to make orders it considers appropriate to redress loss or damage that has been caused or to prevent or reduce loss or damage that is likely to be caused by the UCT.
Whether the terms of a standard form consumer or small business contract is unfair is determined on a case-by-case basis and commercial circumstances but generally an ‘unfair’ term will arise if:
it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
it would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.
If you consider the new laws apply, we recommend that you review your contracts, in particular, contract terms that could be impacted by the new laws including:
Automatic renewal terms
Imbalanced termination rights
One-sided limitation of liability or indemnity terms
Unilateral variation terms
Unfair payment terms
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