Beware of the new changes to the unfair contract terms (UCT) regime which will take effect from 9 November 2023. The changes are brought by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) to amend the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) by increasing the scope of the regime and making the consequences of non-compliance more severe.
The primary purpose of these updates is to strengthen protections for consumers and small businesses against unfair contract terms. In light of the impending changes to the UCT regime, the ACCC has recently warned businesses to remove unfair contract terms from standard form contracts before the new provisions come into effect. If you haven’t already, now is an important time for you to consider how your business will be impacted.
What’s changed?
Definition of Small Business
The thresholds to determine a ‘small business’ will be expanded to include a business with:
- less than 100 employees (previously; 20 employees); or
- less than $10 million annual turnover (previously; where the upfront price payable is under $300,000, or $1 million for contracts lasting more than 12 months).
The ACCC has urged businesses to review whether their customers fall within these thresholds and if in doubt, to assume that their customers are covered.
Prohibitions
It will be illegal to use, propose or rely on an unfair contract term in standard form contracts. By merely having an unfair contract term in your standard form contract or proposing that one be added, you could be at risk of substantial penalties.
Harsher Penalties
The new changes also include more severe penalties for body corporates and individuals in breach of the UCT regime.
The maximum civil penalty per contravention of the UCT provisions for a body corporate will be increased to the greater of:
- $50 million;
- Three times the value of any benefit derived from the relevant breach; and
- 30% of adjusted turnover during the relevant period.
The maximum civil penalty for an individual contravening the UCT provisions will be increased to $2.5 million.
Application
The changes apply to standard form contracts made or renewed after 9 November 2023, as well as where a term of a contract that is varied or added after this date.
If your business has a standard form contract with a customer covered by the UCT regime and that contract is set to continue through to when the new changes come into effect, it’s important that you review contract for any unfair contract terms. If such a contract does contain an unfair contract term, you will not be able to rely on or enforce that provision.
What is an unfair term?
Businesses are reminded that the law asks three questions to determine whether a term is unfair:
- Does the term cause significant imbalance in the parties’ rights and obligations?
- Is it reasonably necessary in order to protect the legitimate interests of the party advantaged by the term?
- Will it cause detriment (financial or otherwise) to the consumer or small business, if enforced?
Examples of terms that may be deemed unfair, include:
- terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract;
- terms that allow one party (but not the other) to end the contract;
- terms that penalise one party (but not the other) for breaching or ending the contract; and
- terms that allow one party (but not the other) to change the terms of the contract.
Courts will consider the contract as a whole and whether any other terms in a contract offset the potential unfairness of a term. Further, Courts will consider the transparency of a term which is determined by whether the term is in reasonably plain language, legible, clear, and not hidden.
What do you need to do?
We encourage businesses to consider whether they or their customers are covered by the updated UCT regime, before the new provisions come into effect. Not only should you review your template contracts for future agreements, but also your contracts that are currently on foot. If you have any concerns about your terms and conditions, please contact us on (03) 9481 2000 or info@tauruslawyers.com.au.