From 9 November 2023, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act) will introduce reforms to the Unfair Contract Terms (UCT) regime under the Australian Consumer Law.
The reforms relating to unfair contract terms will apply to standard form consumer contracts or small business contracts that are:
- entered into on or after 9 November 2023; or
- entered into prior to 9 November 2023 but renewed or varied on or after 9 November 2023.
Why is this important?
Significant penalties
The penalty provisions under the Act have come into effect on 10 November 2022. Businesses and individuals making, proposing, applying or relying on an unfair contract term in a standard form consumer contract or small business contract can be subject to significant penalties.
- For body corporates
- $50 million;
- 3 times the value of the benefit obtained by the body corporate and its related body corporate which is reasonably attributable to the commission of the offence (if the court can determine such value); or
- 30% of the body corporate’s adjusted turnover during the breach period （if a court cannot determine the value above) .
- For individuals: the maximum penalty is $2.5 million.
Expanded range of orders:
Under the current law, an unfair contract term will be void, meaning that it is no longer binding on the parties. If the contract can operate without such unfair term, the rest of the contract will usually continue to bind the parties.
After 9 November 2023, the Australian Competition and Consumer Commission may seek a broader spectrum of orders for contraventions of the UCT regime, including but not limited to:
- an order preventing a similar term from being included in any future contract;
- an order to redress, in whole or in part, loss or damage that has been caused;
- an injunction restraining the respondent from making any future contract that is similar;
- an order declaring the whole or any part of the contract to be void;
- an order varying such existing contract or declaring such contract to have had effect as so varied.
Does the new regime affect my business?
The UCT regime only applies to standard form consumer contracts or small business contracts. The below flowchart aims to assist you in determining whether your business may be caught by the UCT regime.
Broader scope of “small business”
The number of employees and the amount of turnover threshold for “small business” have been significantly increased by the Act.
In addition, part-time employees and casual employees working on a regular basis will be counted for the above headcount.
Broader scope of “standard form contract”
In determining whether a contract is a standard form contract, a court may take into account the following:
- whether one of the parties has all or most of the bargaining power relating to the transaction;
- inserted by the Act - whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and, if so, how many such contracts that party has made;
- whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
- whether another party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;
- whether another party was given an effective opportunity to negotiate the terms;
- whether the terms take into account the specific characteristics of another party or the particular transaction;
- any other matter prescribed by the regulations.
The Act also inserted a new section 27(3) which provides that, a contract may be determined to be a standard form contract despite there being an opportunity for a party to:
- negotiate changes, to terms of the contract, that are minor or insubstantial in effect;
- select a term from a range of options determined by another party;
- negotiate terms of the other contract or proposed contract.
Is the contract term fair?
The existing legal principals remain unchanged in relation to considering whether a term is “unfair”.
A term of a consumer contract or small business contract is unfair 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 (whether financial or otherwise) to a party if it were to be applied or relied on.
All the above three limbs must be proven to exist on the balance of probabilities for a court to decide that a term is unfair.
In determining whether a term of a contract is unfair, a court must take into account the following:
- the extent to which the term is transparent (being expressed in reasonably plain language, legible, presented clearly and readily available to any party affected by the term); and
- the contract as a whole.
Some example of unfair contract terms are:
- a term that permits one party (but not another party) to avoid or limit performance of the contract;
- a term that permits one party (but not another party) to terminate the contract;
- a term that penalises one party (but not another party) for a breach or termination of the contract;
- a term that permits one party (but not another party) to vary the terms of the contract;
- a term that permits one party (but not another party) to renew or not renew the contract;
- a term that permits one party unilaterally to vary the characteristics of the goods or services to be supplied;
- a term that permits one party unilaterally to determine whether the contract has been breached;
- a term that permits one party to assign the contract to the detriment of another party without that other party’s consent;
- a term that limits one party’s right to sue another party.
Key takeaways
Businesses are strongly advised to review existing contracts templates to confirm if they contain any unfair terms, and seek legal advice before preparing any new contracts. Failure to comply the new UCT regime may expose businesses to substantial penalties.
If you have any queries or need assistance with unfair contract terms or contracts in general, please contact us. This article is for general information only and does not constitute legal advice. Reader should seek legal advice before making any decisions.
How can I learn more?
David Wang.
Special Counsel.
Lucia Liu.
Lawyer.
- Business Law, Property Law & Disputes
- 03 9890 3321
- Email Address: l.liu@robinsongill.com.au
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