Amendments to Unfair Contract Term Legislation

7 June 2023 in Business Law, Contract Lawyers

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (“Amendment Act”) has introduced significant changes to Australia’s unfair contract terms. These amendments affect the Australian Consumer Law (ACL) ((Schedule 2 to the Competition and Consumer Act 2010 (Cth)) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Their purpose is to expand the definition, prohibition, penalties and remedies with respect to unfair contract terms in consumer and small business contracts.

These amendments will come into effect on 9 November 2023.

In light of the forthcoming amendments, it is advisable for businesses to review their standard form, small business and consumer contracts to avoid the harsher penalties that will be imposed.

Overview of Unfair Contract Terms

Under Schedule 2 of the Competition and Consumer Act 2010 (Cth), the ACL and the ASIC Act, parties are protected against unfair contract terms. These laws state that unfair contract terms in standard form consumer and small business contracts can be rendered void.

The determination of whether a term is unfair generally involves assessing whether the term:

May cause a significant imbalance in the rights and obligations of parties under the contract;
Is reasonably necessary to protect the legitimate interests of the party advantaged by the term;
Would cause any detriment to a party if it were relied on;
The transparency of the term; and
Is part of a standard form contract.

The Amendments

There are several crucial aspects of the amendments that businesses should take into account. These include the following:

Small Business Contracts

The Amendment Act will expand the definition of Small Businesses to include contracts which are:

a) For a supply of goods or services, or a sale or grant of an interest in land; and

b) At least one party to the contract satisfies either or both of the following conditions:

i) The party makes the contract in the course of carrying on a business and at a time when the party employs fewer than 100 persons; or

ii) The party’s turnover, for the party’s last income year that ended at or before the time when the contract is made, is less than $10,000,000.

Standard Form Contracts

The court will have the authority to consider any relevant matter when determining whether a contract qualifies as a “standard form contract” subject to Australia’s unfair contract terms protections. However, it must take into account the following:

Whether one of the parties has all or most of the bargaining power relating to the transaction;
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 of the contract ;
Whether the terms of the contract take into account the specific characteristics of another party or the particular transaction; and
Any other matter prescribed by the regulations.

Furthermore, the Amendment Act stipulates that a contract may be deemed a standard form contract despite the existence of one or more of the following:

An opportunity for a party to negotiate changes, to terms of the contract, that are minor or insubstantial in effect;
An opportunity for a party to select a term from a range of options determined by another party; or
An opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract

3. Prohibition of Unfair Contract Terms and Increased Penalties

The Amendment Act amends the ACL to strengthen the existing unfair contract terms protections by implementing explicit prohibitions which prevent people from:

Proposing unfair terms;
Applying or purportedly applying unfair terms;
Relying or purportedly relying on unfair terms.

The maximum penalty for corporations that propose, apply or rely on unfair contract terms in standard form small business and consumer contracts will be the greater of:

$50,000,000;
Three (3) times the ascertainable value of the benefit derived by the corporation from the contravention; and
Where the court cannot determine the value of the benefit of the contravention, 30% of the annual turnover of the corporation during the period in which the breach or contravention occurred or started to occur.

In the case of an entity other than a body corporate the maximum penalty is $2,500,000.

4. Additional Remedies

An expanded number of remedies will be available for both private parties and regulators in response to unfair contract terms including the ability to seek court orders to render unfair contract terms void, altered or unenforceable.

Additionally, the consequences of declaring unfair terms void by the court have expanded to allow private parties to seek injunctive relief to prevent the loss, damage or reapplication of substantially similar terms previously declared unfair by the court.

Summary

There are amendments affecting Australian Consumer Law (ACL) (Schedule 2 to the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investment Consumer Act 2001 (Cth) (ASIC Act). Their purpose is to expand the definition, prohibition, penalties and remedies with respect to unfair contract terms in consumer and small business contracts.

These come into effect on 9th November 2023.

It is highly advisable for businesses to review their standard small business and consumer contracts in anticipation of the upcoming amendments. The highly experienced business and contract lawyers at Brander Smith McKnight are happy to provide assistance with this.