ON 27 October 2022, the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed through the Senate, and now awaits Royal Assent.
Among other things, the amendments mark a significant expansion of the unfair contract terms regime of the Australian Consumer Law (the ACL) inherent in the Competition and Consumer Act 2010 (Cth) (the Act), by introducing a civil penalty regime, prohibiting the use of and reliance on unfair terms in standard form contracts, and expanding the class of contracts covered by the UCT regime.
A brief recap on the UCT regime
The UCT provisions were introduced with the inception of the ACL in 2010 in relation to standard form contracts entered into with consumers and, in 2016, the regime was extended to cover certain (small) business-to-business contracts.
The UCT provisions effectively provide that a term of a standard form contract entered into with a consumer or small business is void and unenforceable if it is “unfair”.
A term is unfair if it:
- causes a significant imbalance in the parties’ rights and obligations;
- is not reasonably necessary 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 the term were to be applied or relied upon.
While the concept of a “small business” is not defined in the Act, the regime applies if the standard form contract is with a party which employs fewer than 20 persons and the upfront price payable under the contract is less than $300,000 (if the term is less than 12 months) or does not exceed $1 million (if the term is greater than 12 months).
The ACCC’s position
The ACCC has long advocated for the need for an express prohibition on the inclusion of UCTs in standard form contracts, and the introduction of associated penalties to the regime.
In its 2018 submission to Treasury for the Review of Unfair Contract Term Protections for Small Business, the ACCC said that “[t]here is little incentive for businesses offering standard form contracts to comply with the law, since the inclusion of UCTs in standard form contracts is not a contravention of the ACL and the court cannot impose a penalty on a business that includes UCTs in its standard form contracts” and, as a result, “compliance and enforcement action by regulators has minimal deterrence”.
In effect, the concern is that proponents of standard form contracts with consumers and small business see the UCT regime (and the possibility of certain terms being declared void) as an acceptable cost of doing business.
So, what’s changed?
We set out below a brief summary of some of the amendments to the UCT regime (of the ACL only), by way of a comparison to the existing provisions of the Act.
| Existing ACL provisions | New ACL provisions (on commencement) |
| UCTs are not prohibited, but are liable to be declared void (and therefore not binding on the parties to the contract). | While UCTs can still be declared void, it will now also be illegal to propose, apply, rely on or purport to apply or rely on, an unfair contract term. |
| No penalty regime | Pecuniary penalties aligned with other contraventions of the ACL. For corporations, the maximum penalty for breaching the new prohibition on UCTs will be the greater of: (a) $50 million; (b) 3 times the value of the benefit obtained (where the benefit obtained can be determined by the Court); and (c) 30% of the corporation’s adjusted turnover during the “breach turnover period”. For individuals, the maximum penalty for breaching the new prohibition on UCTs will be $2.5 million per breach. |
| Thresholds for application to a standard form contract: (a)one party to that contract must have less than 20 employees; and (b) the upfront price of that contract must not exceed $1 million for contracts over 1 year in duration, or $300,000 for shorter contracts. | The thresholds are amended, such that one party to the contract must have: (a) less than 100 employees; or (b) less than $10 million in turnover for the last financial year. The upfront contract value threshold has been removed. |
| The factors affecting whether a contract is a “standard form” include whether a party was forced to “take it or leave it” and whether they were given an opportunity to negotiate its terms. | A contract may be in “standard form” even if, among other things, there was an opportunity to negotiate minor or insubstantial changes to the terms, or to select from a pre-determined set of options. The Courts will consider whether the proponent of the contract has used the same or a similar contract previously. |
| When a term has been declared unfair, a party is restrained from applying or relying on that term. | After a term has been declared unfair, a party is restrained from using the same or substantially similar terms in future contracts. |
| Examples of contracts excluded from the regime include: (a) contracts for the carriage of goods by ship; (b) a charterparty of a ship; (c) contracts of marine salvage or towage; and (d) the constitution of a company, managed investment scheme or other body. | Additional contracts excluded from the regime include: (a) certain life insurance contracts; (b) the operating rules of licensed financial markets; (c) the operating rules of licensed clearing and settlement facilities; and (d) RTGS systems approved as payment and settlement systems by the RBA. |
And what’s next?
The changes to the UCT regime of the act will take effect on the date that is 12 months after the amending legislation receives Royal Assent. It will apply to standard form contracts made, renewed or varied on or after that date.
This 12 month “grace period” is intended to allow businesses an opportunity to review and adjust their contracts and practices, if required.
To this end, readers should consider whether their commercial partners will fall within the expanded scope of the regime and have their standard form contracts legally reviewed now with the changes in mind, with a view to identifying potentially unfair terms and ensuring compliance on and from the looming commencement date.
* Richard Arrage is the head of transport and logistics (NSW) at Hunt & Hunt Lawyers. He maintains a comprehensive practice covering transactional, contentious, contractual and regulatory issues.
