CHANGES TO UNFAIR CONTRACT TERMS IN AUSTRALIA

On November 2023, Australia’s unfair contract terms (UCT) regime will apply to a significantly larger pool of contracts than before, affecting businesses that may have previously considered themselves exempt from the regime.

Alongside this expansion of coverage, the updated UCT regime introduces substantially increased penalties for non-compliance, amplifying the importance of adherence to the regulations. With just six months remaining until these changes come into effect, Australian businesses must review their standard contract documents used for customer and supplier agreements to ensure compliance with the updated UCT regime.

Background

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022, which became law on 9 November 2022, made changes to the Competition and Consumer Act 2010 (Cth) (CCA) and the UCT regime. These changes will affect standard form consumer contracts and small business contracts starting from 10 November 2023. The expanded UCT regime will now encompass standard form consumer contracts and small business contracts that are entered, renewed, or varied from 10 November 2023.

Changes to the ‘Unfair Contract Terms’ Regime

The changes introduced by the Act reflect the increased focus of the Australian Competition and Consumer Commission (ACCC) on protecting consumers and small businesses. Key changes include:

Stricter Penalties:

The Act raises the maximum penalties for breaching the Competition and Consumer Act (CCA). Companies now face fines of up to $50 million or 30% of adjusted turnover, whichever is greater. Individuals can be fined up to $2,500,000. These penalties took effect on 10 November 2022.

Penalties for Unfair Contract Terms:

Previously, unfair contract terms were void and unenforceable without attracting penalties. However, as of 10 November 2023, the Act prohibits making or relying on unfair contract terms. Each unfair term within a contract constitutes a separate violation. This change introduces the possibility of pecuniary penalties for contravening this prohibition.

Expanded Protection for Consumers and Small Businesses:

The UCT regime now covers standard form contracts with both consumers and small businesses. The definition of a small business has been broadened to include those with fewer than 100 employees or less than $10 million in annual turnover. This extension significantly enhances the scope of protection provided by the UCT regime, necessitating awareness among Australian businesses engaged in standard form contracts with suppliers.

Clarification of ‘Standard Form Contracts’:

The Act provides clarity on what factors should not be considered when determining if a contract is a ‘standard form contract.’ Courts must no longer take into account whether a party had the opportunity to negotiate minor changes, choose a term from multiple options, or negotiate the terms of another contract. Businesses that previously classified contracts as not ‘standard form’ based on these factors will need to reassess their classification.

Next steps

As the changes to the UCT regime become effective on 10 November 2023, businesses using standard form contracts face higher stakes. The Act expands the UCT regime’s application and introduces substantial penalties for non-compliance.

To ensure compliance before the deadline, businesses should assess all their standard form contracts, considering factors such as whether they qualify as ‘standard form contracts,’ whether they are used with consumers or small businesses, and whether they contain any UCTs. While the provided table offers a starting point, determining the unfairness of terms requires a case-by-case assessment based on the specific circumstances of the parties involved.