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Major changes to unfair contract terms

Overview

Recent amendments to the unfair contract regime means significant changes and higher penalties could impact your business.

There are greater consequences for contractual conditions being determined “unfair” due to the expanded scope of the modified UCT regime and the increased financial penalties under the CCA. It is essential that your business has its standard form contracts in order to avoid these harsher penalties.

Details

There have been significant changes to the Competition and Consumer Act 2010 (CCA), which includes the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act). This is a result of parliament’s passing of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act), which was assented to on 9 November 2022.

The amendments are designed to increase the maximum penalty that can be applied to certain breaches of competition and consumer law, to deter worst-case company misconduct and improve the protection of consumers generally.

Importantly, this Act considerably increases the maximum penalties that may be awarded by a Court for contraventions of Australia’s Competition and Consumer Laws. The proposed increases in maximum penalties will have widespread application across the most significant competition and consumer law prohibitions. The new Act also makes major amendments to Australia’s laws on unfair contract terms.

It is anticipated the Australian Competition and Consumer Commission (ACCC) will advocate for courts to apply significant penalties for companies engaging in the prohibited practices, particularly as the previous consequences were considered by some to be insufficient.

Businesses operating in Australia should review their standard form contracts with small businesses and consumers as soon as possible.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

The Act

There are two schedules to the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act). Below we go into detail about both.

Schedule 1 

Schedule 1 deals with changes to the penalty regime under the CCA (including the ACL). Changes commenced on 10 December 2022.

This schedule amends the Competition and Consumer Act 2010 (CCA) and the Australian Consumer Law (ACL) as contained in the CCA.

The existing financial thresholds under ACL that apply to relevant contracts are to be removed. As a result, all standard form contracts with a “small business” would be subject to the ACL laws. Small businesses are defined as those with up to 100 employees (up from 20) or with annual revenues up to $10 million.

Additionally, the maximum penalty for breach of certain offences and civil penalty provisions by a body corporate, or a person that is not a body corporate will increase. The new maximum penalty will be the greater of:

  • $50 million;
  • If the court can determine the value of the benefit obtained – three times the value of that benefit; or
  • If the court cannot determine the value of the benefit obtained – 30% of the body corporate’s adjusted turnover during the breach turnover period for the offence, act, or omission.

The new maximum penalty for breach of certain offences and civil penalty provisions by a person that is not a body corporate will increase from $500,000 to $2.5 million.

The new maximum penalty for contravention of the Competition Rule by a body corporate will be the greater of:

  • If the contravention continued for 21 days or fewer – the sum of $50 million and $1 million for each day that the contravention continued;
  • If the contravention continued for greater than 21 days – the sum of $71 million and $3 million for each day in excess of 21 days that the contravention continued;
  • If the court can determine the value of the benefit obtained – three times the value of that benefit; or
  • If the court cannot determine the value of the benefit obtained – 30% of the body corporate’s adjusted turn over during the breach period for the contravention.

The maximum penalty for contravention of the competition rule by a person that is not a body corporate will increase from $500,000 to $2.5 million.

What the new terms mean:

The new term “adjusted turnover” means the sum of the value of all supplies that the body corporate (and any related body corporate) has made or is likely to have made during the breach turnover period.

The new term “breach turnover period” represents the duration of the breach, however 12 months is the minimum period over which the penalty is calculated.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

Schedule 2

Schedule 2 deals with unfair contract terms in small business standard form contracts. Changes will commence on 9 November 2023 (12 months after the Act received Royal Assent).

Schedule 2 of the Act amends the CCA, ACL and ASIC Act to strengthen and clarify the existing unfair contract terms and provisions and minimise the prevalence of unfair contract terms in consumer and small business standard form contracts. There are currently no penalties for unfair contract terms.

Unfair contract terms apply to standard from contracts. If a court determines a term is unfair, it will be void. To determine if a term is unfair it will be subject to the test set out in section 24 of the ACL and section 12BG(1) of the ASIC Act.

A term will be unfair if it:

  1. Causes a significant imbalance in the parties’ rights and duties arising under the contract;
  2. It is not reasonably necessary in order to protect the legitimate interests of the party who is advantaged by the term; and
  3. It causes detriment (financial or otherwise) to a party if it were to be applied or relied on.

Under Schedule 2, it is now forbidden to:

  1. Enter into a standard form contract containing unfair terms for consumers or small businesses; and
  2. Apply or rely on an unfair contract term (or to purport to apply or rely) in a standard form contract for consumers or small businesses.

The amendments introduce a civil penalty regime prohibiting the use of and reliance on unfair contract terms in standard form contracts. They also expand the class of contracts that are covered by the unfair contract terms and provisions.

The existing financial thresholds under the ASIC Act that apply to relevant contracts are to be increased to $5 million (up from $3 million). Also, small businesses are to be defined as entities with up to 100 employees (increased from 20) or with an annual turnover of up to $10 million.

Therefore, the protections of the ASIC Act will apply to a small business contract if the upfront price payable does not exceed $5 million and one party to the contract employs fewer than 100 persons or has a turnover for the last year of $10 million.

How can BSM Lawyers help me?

The business lawyers at Brander Smith McKnight have over 40 combined years of experience and remain up-to-date with all legislation regarding consumer law, including unfair contract terms. We are happy to explain how this amended legislation impacts your individual situation.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

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