Key points
1. On 9 November 2023, the new unfair contracts regime will commence broadening the application of the current regime which includes the introduction of significant penalties.
2. There will be amendments to the definition of ‘small business’ and ‘standard form contract’.
3. Unfair contract terms will be illegal, and may attract a maximum pecuniary penalty of:
(a) individuals - $2,500,000; or
(b) corporations – to the greater of
(i) $50 million;
(ii) three times the value of the benefit obtained if able to be determined; or
(iii) 30% of the corporation's turnover during the offence period if the value in (b)(ii) cannot be determined.
Introduction
There is now less than 5 months until the amendments to the Unfair Contracts Terms (UCT) regime under the Australian Consumer Law (ACL) come into force.
On 9 November 2023, the new UCT regime will apply to a significantly broader range of contracts than ever before. Businesses should beware, even if the current regime does not apply, the new UCT may apply.
Australian businesses should review and update their standard form contracts to ensure they comply with the new UCT regime to avoid the new significant penalties which can include a substantial pecuniary (monetary) penalty.
The New UCT Regime
The ACCC have long advocated for reforms to the UCT regime under the ACL claiming that UCT laws are required to be strengthened as they do not provide enough protection to consumers and small businesses against standard form contracts that take advantage of the disparity in bargaining power.
On 9 November 2022, the
Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth) received Royal Assent, implementing reforms to the UCT regime. These amendments to the UCT regime, apply specifically to section 23 of the ACL, and essentially broaden the application of the UCT regime, introducing and increasing penalties.
The new UCT regime will commence on 9 November 2023 following a transition period allowing businesses to review and update their standard form contracts to ensure compliance. The new regime will apply to contracts made on or after 9 November 2023 and includes contracts renewed or varied on or after that date.
Who does this apply to?
The new UCT Regime will apply to all businesses that use standard form consumer or small business contract.
Quick Recap – What is an Unfair Term?
A term of a standard form consumer or small business contract will be deemed unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.
Whether a term is unfair, requires a case-by-case analysis and depends on the specific circumstances of the parties. The court must also consider whether the term is transparent as well as the fairness of the term in the context of the contract as a whole.
Broadened Application
Definition of a ‘Small Business’
The new UCT regime has broadened the definition of ‘Small Business’ so a greater range of businesses will be afforded protection, and will apply to a small business contract if one party is a business that:
- employs fewer than 100 employees (currently fewer than 20); and/or
- has a turnover for the last income year of less than $10,000,000 (currently $1,000,000).
The new regime will also remove the contract value threshold which required that the value of the contract must not exceed $300,000 or, for contracts with a duration more than 12 months, $1,000,000.
Definition of a ‘Standard Form Contract’
The new UCT regime has also introduced amendments on the assessment of what is a ‘Standard Form Contract’, allowing for contracts previously not applicable for protection to be included under the new regime.
The court must consider whether one of the parties have used the same or a similar contract before.
Contrary to the current regime, under the new UCT regime, the court may decide that a term is unfair, despite there being an opportunity for a party to:
- negotiate changes to contract terms that are minor or insubstantial in effect;
- select a term from a range of options determined by another party; or
- another contract or proposed contract to negotiate its terms
Introduction of and Increased Penalties
Under the new UCT regime, unfair terms will become illegal and be subject to pecuniary (monetary) penalties, in contrast with the current regime where the only penalty is the declaration that an unfair contract term is void and unenforceable.
It should be noted that each individual term that is determined to be “unfair” will constitute a separate contravention. If a term is unfair, it may attract a maximum pecuniary penalty of:
(a) individuals - $2,500,000; or
(b) corporations – to the greater of
(i) $50 million;
(ii) three times the value of the benefit obtained if able to be determined; or
(iii) 30% of the corporation's turnover during the offence period if the value in (b)(ii) cannot be determined.
Conclusion
Businesses should take advantage of the remaining 5 months or less of the transition period to review their standard form contracts to ensure compliance. It is recommended that an exhaustive review be completed of the contract to ensure that each individual clause is not at risk of being deemed “unfair” as each individual unfair term will constitute a separate contravention.
Hicksons are available to assist you in reviewing and updating your contracts to ensure compliance and to help you understand your obligations under the new UCT regime.
Blog written by Hicksons’ Partner, Chloe Ellis, and Paralegal, Julia Dang.