^{Co-authored by Michael Kinsella}

Businesses, consider yourself warned – the penalties for competition and consumer law breaches in NSW have recently increased significantly. The increases correlate with the change in how unfair contracts are identified and penalised.

The changes stem from the introduction of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, which commenced on 10 November 2022. Under the new law, the maximum penalty for a corporation that breaches the Competition and Consumer Act 2010 (CCA) is now $50 million. This is a drastic rise from the previous maximum penalty of $10 million. For individuals, the maximum penalty has also increased from $500,000 to $2.5 million – an increase of 500%.

Purpose of the increased penalties

The increased penalties are intended to deter businesses from engaging in anticompetitive conduct and to protect consumers from unfair business practices.

In addition to the increase, the unfair contracts regime in NSW has been expanded to limit the use of “standard term” arrangements that negatively and disproportionately target consumers and small business owners. This means that businesses are now more likely to be held liable for unfair contract terms and may face financial penalties under the new Bill.

With the introduction of pecuniary penalties, the Bill states that each unfair term in a contract will attract a separate contravention and punishment. Within the second reading speech, these new penalties were justified as “(b)y strengthening penalties, Australia will be promoting competition and better corporate behaviour.”

What is an unfair contract term?

An unfair contract term is a term that is so one-sided that it would cause a significant imbalance in the parties’ rights and obligations. Examples include terms that:

• Exclude or limit a consumer’s legal rights
• Require a consumer to pay excessive fees
• Make it difficult for a consumer to cancel a contract

If a business uses an unfair contract term, they may be liable to a consumer for damages. The increased penalties and expanded unfair contracts regime mean that businesses need to be more careful about their compliance with competition and consumer law by reviewing their contracts and ensuring that they do not contain any flagged terms.

Areas of reform in unfair contract terms

The new Bill seeks to deter the use of “standard term” arrangements that can proliferate unfair contracts. Currently, the law allows courts to declare an unfair term contained in standard form contracts as invalid. The principal reforms are:

• Pecuniary penalties for unfair contract terms
  • As previously stated, the current law doesn’t attract pecuniary penalties for unfair contract terms – simply deeming the unfair term as ‘void’. However, the new Bill means that penalties will apply to any individual or company who creates a contract that contains, relies upon or appears to rely upon an unfair contract term.
• Classification of standard form contracts
  • Under the new Bill, courts will be required to consider whether parties have made other contracts in the same or similar terms and, if so, the number of contracts, in order to conclude whether a contract is in standard form. The Bill also acknowledges standard contracts where:
    • There is an opportunity for a party to negotiate changes to terms that are minor or insubstantial in effect
    • An opportunity for a party to select a term from a range of options determined by other parties
    • An opportunity for a party to another contract to negotiate terms of the other contract
  • Small business contract expansion
    • Previously, small business contracts were defined by the requirement of one party (the small business) to have fewer than 20 employees with an upfront price payable of less than $300,000. The new definition – commencing in November 2023 – will entail all contracts where at least one party has fewer than 100 employees and their last income year (ending at or before the contract is made) had less than $10 million in turnover.

The new penalties associated with unfair contract terms are only one of two alternate remedies that will commence in November 2023. Specifically, a court may impose an order preventing a party from including a term in any relevant contract in the future that is the same, or substantially similar, in effect to a term declared unfair. This will ensure corporate compliance with the orders of the court, beyond the order itself.

Advice for business owners

If you are a business owner, there are a few things you can do to ensure compliance with competition and consumer law:

• Review your contracts and ensure that they do not contain any unfair terms
• Be aware of the new penalties and the potential consequences of non-compliance
• Get advice from a lawyer if you are unsure about any aspect of competition and consumer law

By following these steps, you can help to protect your business from the risk of a costly penalty.

For more information on competition and consumer law, please visit the Australian Competition and Consumer Commission (ACCC) and NSW Fair Trading.

How we can help you

If you require assistance with the creation, update or renewal of a contract or have any questions relating to the new Bill, please contact Coleman Greig’s Commercial Advice team.

_{This material is provided by Coleman Greig Lawyers as general information only in summary form on legal topics current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.}