Background

The Australian Consumer Law (ACL) voids unfair contract terms (UCT) in standard form consumer and small business contracts involving the supply of goods or services or the sale or the grant of an interest in land. The Australian Securities and Investments Commission Act 2001 (ASIC Act) similarly voids UCT in these standard form contracts but instead where they provide financial products or services or are insurance contracts.

Late last year, and with a view to providing stronger deterrence, the Australian Parliament enacted tougher laws against UCT by passing the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Amendment Act).

The tougher laws commence on 9 November 2023. In summary, the laws:

• introduce stronger remedies and enforcement against UCT (in particular civil penalties of potentially millions of dollars and potential public ‘naming and shaming’); and
• drag further contracts into Australia’s national UCT regime.

Stronger remedies and enforcement

The Amendment Act ‘toughens up’ the current regime with new provisions that:

• prohibit UCT in standard form contracts;
• ban persons from applying or relying on UCT in these contracts;
• create new civil penalty provisions for breaches of:
• up to $2,500,000 for individuals and potentially at least $50,000,000 for body corporates under the ACL;
• potentially at least $1,565,000 for individuals and $15,650,000 for body corporates under the ASIC Act;
• broaden court powers from just automatically voiding specific unfair terms to also making orders voiding, varying or refusing enforcement of whole contractual arrangements if appropriate to prevent loss or damage that is likely to be caused;
• facilitate for courts on application of the regulator orders that:
• prevent similar unfair terms from being included in future contracts;
• prevent or reduce likely loss or damage to persons from substantially the same unfair terms; and
• clarify the current statutory injunctive relief available by empowering courts to grant injunctions that stop persons from:
• entering future contracts that have a similar unfair contract term; or
• relying on existing contracts that have a similar unfair term;
• empower courts to make adverse publicity orders and disqualify people from managing corporations for breaches of the UCT provisions;
• extend ASIC’s powers to mirror those of the Australian Competition & Consumer Commission (ACCC) under the ACL and issue public warning notices for suspected breaches of the UCT provisions.

Expanded class of contracts caught

To qualify as a ‘small business contract’, all parties to the contract must be businesses. Of those parties, one must employ fewer than 20 people. In addition, the upfront price payable under the contract either must not exceed $300,000 or if the contract goes for longer than 12-months $1,000,000.

The Amendment Act catches more small business contracts by:

• expanding the thresholds to include parties that employ fewer than 100 people or who have less than $10,000,000 turnover for the last income year; and
• removing the contract value threshold.

The Amendment Act also ensnares further contracts by clarifying that standard form contracts may even include those where there were opportunities to negotiate or choose from a range of pre-determined options.

Preparations for businesses before the tougher laws start

Businesses enter numerous standard form contracts. The strategy for addressing these contracts ultimately depends on whether the business is the supplier or customer under the contract.

Ultimately, businesses should carefully review their contracts to identify whether any UCT. Following the Amendment Act, a term remains unfair if it satisfies all of the following criteria:

• it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
• it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

The legislation and case law are also replete with ‘red flags’ that put businesses on notice as to whether they have UCT. These include terms that:

• permit only one party to avoid or limit performance of or terminate the contract;
• penalise one party but not the other for breach or termination;
• permit just one party to vary the terms of the contract;
• only allow one party the choice of renewing the contract;
• permit unilateral changes to the upfront price payable;
• allow unilateral variations to the things provided under the contract;
• permit unilateral determinations on a contract’s interpretation or on whether there is a breach;
• limit one party’s vicarious liability;
• assign the contract to the detriment of the other party without that party’s consent;
• limit one party’s right to sue the other party;
• limit the evidence one party can show in proceedings; and
• impose the evidential burden on one party in proceedings relating to the contract.

For more information or if you would like assistance identifying and removing unfair contract terms from your contracts prior to the introduction of the tougher laws, please contact Coleman Greig’s Commercial Advice team.