Changes in Australia’s Unfair Contract Terms

by | Oct 3, 2023 | Business Sellers & Purchasers, Commercial Clients, Franchisors, Start-Up & Expanding Businesses, Tradie Businesses

Unpacking the Changes in Australia’s Unfair Contract Terms (UCT) Regime

So what exactly are the changes in Australia’s Unfair Contract Terms? From 10 November 2023, Australia will see a substantial expansion in the scope of contracts covered by the unfair contract terms (UCT) provisions. Even businesses that once felt exempted from the UCT regime need to reassess their standing. Furthermore, the consequences of non-adherence have grown considerably in terms of penalties.

 As we move closer to the activation date, it’s imperative for businesses in Australia to revisit their standard agreements utilized with customers and suppliers. This will ensure they align with the revamped UCT provisions.

A Quick Dive into the Background

On 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) was ratified, ushering in numerous alterations to the Competition and Consumer Act 2010 (Cth) (CCA) and the UCT framework.

 The majority of the alterations to the UCT regulations set by the Act are transitioning and will be in full effect from 10 November 2023. Consequently, the revised UCT provisions will pertain to standard consumer and small business contracts that are: (i) formulated from 10 November 2023 onwards; or (ii) renewed or adjusted post-10 November 2023.

Unpacking the Revamped ‘Unfair Contract Terms’ Provisions

The amendments ushered in by the Act echo the Australian Competition and Consumer Commission’s (ACCC) amplified emphasis on safeguarding consumers and small-scale businesses. The primary changes encompass:

Escalation in Penalties: The Act amped up the highest penalty for CCA breaches. This includes:

   – For corporations: the greater of: (i) $50 million; (ii) x3 the value of the benefit obtained and that is reasonably attributable to the breach, if that can be determined; and (iii) if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (i.e., over the period the breach occurred, with a minimum of 12 months); and

   – For individuals: A whopping $2,500,000.

UCTs are illegal and attract pecuniary penalties: Previously, UCTs, when deemed ‘unfair’ by a Court, were simply considered null and void. Starting 10 November 2023, there will be restrictions against crafting a contract containing a UCT (if proposed by the same person) and against invoking or leaning on such a UCT. Every UCT in an agreement is viewed as a distinct violation. For the first time since its introduction, breaching this can result in hefty financial penalties.

Expanded Definition for Small Businesses: The ambit of the UCT framework now extends to standard agreements with consumers and smaller businesses. As of 10 November 2023, a ‘small business’ will be redefined from one with under 20 staff members to one that either employs fewer than 100 individuals or had a turnover of less than $10 million the previous financial year. This broadens the range of businesses under the protective umbrella of the UCT provisions. Consequently, local businesses transacting with suppliers via standard contracts must recognize that suppliers with a team of under 100 are now categorized as ‘small businesses’ as per the UCT terms.

Redefining ‘Standard Form Contracts: The Act now provides clarity on how a Court should evaluate ‘standard form contracts’. From 10 November 2023, certain considerations, like minor negotiation opportunities, are excluded from the Court’s purview. Those who previously designated contracts as not being ‘standard form’ based on these criteria will have to reassess their contracts.

Empowered Judiciary: The Act equips Courts with heightened authority, including injunction capabilities and the power to issue corrective orders for losses or potential damages due to the UCT.

    Details on Unfair Contract Terms Provisions

    Defining an Unfair Term

    While the Act introduces numerous changes, it doesn’t alter the criterion for ‘unfairness’. Briefly, an unfair term in a standard consumer or small business agreement is one that:

    • Skews the balance of rights and obligations of involved parties.
    • Isn’t essential for the legitimate interests of the benefiting party.
    • Would result in financial or other disadvantages if invoked.

     This definition isn’t one-size-fits-all. The interpretation will vary based on unique commercial contexts. Moreover, the CCA doesn’t enumerate “unfair” terms, but it does offer an extensive list of potentially unfair clauses. Every term’s classification as ‘unfair’ is a case-specific judgment.

     

    Charting the Path Ahead

    Post 10 November 2023, businesses employing standard contracts will face elevated risks. The Act’s double-edged sword both widens the UCT’s scope and introduces heftier penalties and enforcement measures for non-compliance. Thus, businesses must promptly review all their standard contracts to ensure alignment ahead of the November deadline. For every template contract utilised, businesses should evaluate:

    •  Its classification as a ‘standard form contract’ in light of the Act’s new guidelines.
    • Its applicability to consumers or to clients/suppliers with less than 100 employees or an annual revenue below $10 million.
    • The presence of any UCTs.

     

    Get in Touch

    We can review your standard documents and determine if any clauses need amending so as not to fall foul of the new UCT regime. Click here for a free call.

    Disclaimer: This blog post is intended for informational purposes only and should not be considered legal advice. Consult with a qualified commercial lawyer for personalised advice related to your specific circumstances.

    Related article: Terms and Conditions

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    Helen Kay - Managing Director

    Helen Kay

    If you require any assistance with your business legals or any other commercial legal issue, please do not hesitate to contact me.

    Typical Legal Disclaimer!…

    Unfortunately, there is never a ‘one size fits all’ formula to apply. Every situation is unique and it can be tricky to wrap your head around some areas of the law. To ensure you are setting yourself and your business up for success, it is always best to consult a legal professional with expertise in the field.

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