The new unfair contract term regime, introduced by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022, comes into effect on 9 November 2023.
Under the old regime, contract terms that were deemed ‘unfair’ could be declared void and ‘struck out’ from the contract. Under the new regime, significant penalties can apply in addition to the term being void and unenforceable.
These changes will impact all businesses who use ‘standard form contracts’ to contract with either consumers or small businesses (including when the other party is a foreign entity). It is critical that businesses update their contracts now to remove any unfair terms to avoid potentially suffering financial penalties under the new regime.
Australian law prohibits the use of unfair contract terms in standard form consumer contracts through the Unfair Contract Term (UCT) regime in the Competition and Consumer Act 2010. The UCT regime itself is not new. ASIC has administered the law dealing with UCT in standard form consumer contracts for financial products since July 2010, which was then expanded in November 2016 to include standard form small business contracts and then again in April 2021 to cover consumer and small business insurance contracts. Under these regimes, if the Court decided that a term was unfair, then it could be declared void and unenforceable.
The latest update to the regime, effective from 9 November 2023, introduces financial penalties in addition to the term being void.
The maximum financial penalties for businesses found to be in breach of the updated UCT regime is the greatest of the following:
For individuals, the maximum penalty is $2.5 million.
In addition to the penalties under the Australian Consumer Law, penalties can also be applied under the Australian Securities and Investments Commission Act 2001 (ASIC Act) if unfair contract terms are contained in contracts for financial products and services.
Under both the ACL and the ASIC Act, the penalties are per unfair contract term. Therefore, it is possible for a business to be penalised a large number of times, if there are multiple unfair contract terms applied or relied on, across multiple contracts with multiple other parties. In other words, the penalties can quickly become costly.
The UCT applies only to standard form contracts.
In determining if a contract is a standard form contract or not, the Court has discretion to consider any matters it considers relevant. However, the Court must take into account the factors in section 27(1) of the Australian Consumer Law, which are:
Also part of the changes under the new UCT regime under the Australian Consumer Law, at least one of the parties to the standard form contract must have fewer than 100 employees (increased from fewer than 20) or less than $10 million in annual turnover for the UCT (instead of the contract price threshold under the previous law).
In brief, a contract is likely to be a standard form contract if it is a standard set of terms and conditions that is issued to multiple individuals. As an example, in 2022, the Federal Court decided that Fujifilm had issued standard form contracts to thousands of small businesses, and those standard form contracts contained unfair terms.
A contract term is unfair under section 24(1) of the Australian Consumer Law if:
Again, the Court has discretion to consider other matters it considers relevant, based on the specific circumstances of the matter.
There is also a list of examples of what may constitute an unfair contract term in section 25 of the Australian Consumer Law which the Court may take into consideration when deciding if a term is unfair or not.
The aim of this section is to provide guidance to the Court, without being prescriptive. These include terms that allow only one party to:
The overarching theme in this list of examples is that a term is likely to be unfair if it is one-sided and allows unilateral rights to the more powerful party. However, the list is non-exhaustive. We can expect to see significant development in the case law as different sorts of potentially unfair contract terms are litigated on.
Businesses should have their standard form contracts reviewed in light of the updated unfair contract term regime. In March of this year, the ACCC Chair forewarned businesses that they will be “undertaking a review of business terms and conditions across a number of different sectors” and treating unfair contract terms as an enforcement priority.
This article in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.
This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.
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