The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) received Royal Assent on 9 November 2022 and introduced a host of changes to the Competition and Consumer Act 2010 (Cth) (CCA) and the unfair contract terms UCT regime. The expanded UCT regime will apply to standard form consumer contracts and small business contracts: (i) entered into from 10 November 2023; or (ii) renewed or varied from 10 November 2023.
The new changes introduced by the Act reflect the Australian Competition and Consumer Commission’s (ACCC) increased focus on protecting consumers and small businesses. The main changes include increased penalties, broader definition of small businesses, changes to assessment of ‘standard form contracts’ and more powers given to Court.
What are unfair contract terms?
A term within a contract is considered unfair where:
- the contract term or clause would create an imbalance between what rights or responsibilities the contract gives to each party;
- the clause is not reasonably necessary to protect one party’s legitimate business interests; and
- the term would cause detriment (financial or otherwise) if it were to be applied or relied upon.
What are the changes to unfair contract terms from November 2023?
Definition of small business
With the new laws, the definition of small business will increase to include businesses which have less than 100 employees or have an annual turnover of less than $10 million.
Definition of small business contract
Another change is that the maximum upfront price payable threshold will be removed except for contracts governed by the Australian Securities and Investments Commission Act 2001 (Cth) for which the maximum upfront price payable will increase to $5,000,000.00.
New penalties for breaches of unfair contract term laws
Before the Amending Act, if a term was considered to be an unfair contract term, the consequence would be that that particular term would be considered ‘void’. This would not affect other terms, obligations and benefits in the rest of that contract. When a term is void, the contract then operates as if that unfair term was never included.
With the new Amendments, an unfair contract term will be considered illegal. While this still includes declaring that the unfair contract term could be void and unenforceable, it could also include the use of injunctions to prevent the use of, or reliance on, that term in the future, various orders being made and financial civil penalties which may be imposed for the use of unfair contract terms.
The maximum civil penalties are:
- for individuals, $2.5 million; or
- for companies (and other bodies corporate), the maximum penalty will be the larger of:
- $50 million;
- 3 x the benefit value obtained by using the unfair contract term; or
- where the benefit value cannot be calculated, 30% of the company’s adjusted turnover during the period of the breach.
What does this mean for a business and other people entering contracts?
For businesses and individuals, this means that they have to review their contracts to ensure they do not include any unfair contract terms. They should review their contracts to identify any terms which might be considered ‘standard form contracts’ and should ensure these documents are amended to remove or amend any terms or clauses which may be considered unfair. For advice and support regarding competition and consumer law requirements and best practice within your organisation, contact our experienced team of lawyers.
