Upcoming changes Unfair Contract Terms laws

The Treasury Amendment (More Competition, Better Prices) Act 2022 (Cth) (Act) increases maximum civil and criminal penalties for consumer law breaches and expands the scope and application of the unfair contract terms provisions.

Phase 1, which concerns increased penalties, came into effect on 10 November 2022, while Phase 2, which expands the scope and application of the unfair contract terms provisions, comes into effect on 9 November 2023.

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How does the Act expand unfair contract terms?

The Act makes it a contravention of the Competition and Consumer Act 2010 (Cth) (CCA) if a person:

1. enters into a standard form consumer or small business contract, which contains an unfair term proposed by them; or
2. applies or relies on or purports to apply or rely on, an unfair contract term within a standard form consumer or small business contract.

Each individual contravention is a separate breach of the provisions, meaning a contract which contains multiple unfair contract terms, or relying on the same unfair term multiple times, will result in several contraventions.

The is a significant new prohibition as the Court previously only had the power to declare that a provision was an unfair contract term and that it was void or unenforceable. Whereas now, the Court will be able to impose pecuniary penalties for the inclusion or reliance on an unfair contract term.

For the purposes of the ACL, the Act expands the meaning of a “small business” from fewer than 20 employees to fewer than 100 employees. As an alternative, the Act provides for a new annual turnover threshold of $10 million.

The upfront price thresholds (i.e. the monetary value of the contract) are no longer a criterion for determining whether a contract is a “small business contract” in most cases. However, the upfront price threshold remains for contracts related to financial products and services, but that threshold has increased from $1 million to $5 million.

Th Act also provides that whether a contract is standard form should be considered with regard to if and how many times a respondent has entered into contracts that are the same or substantially similar, which is anew factor the Courts must consider.

Additionally, the Act clarifies when the Court must consider whether a plaintiff was required to accept or reject a contract in full, or, whether they were given an opportunity to negotiate at all – they are not to have any regard for whether the plaintiff was able to negotiate minor or insubstantial changes, or, whether other parties to other similar contracts were able to negotiate the contract terms.

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How does the Act increase civil and criminal penalties?

The Act substantially increases maximum civil and criminal penalties for breaching certain parts of the CCA, including all of the provisions in relation to unfair contract terms.

These increases apply to natural persons and corporations:

1. For natural persons, the maximum civil penalty has increased to $2.5 million.
2. For corporations, the maximum civil penalty has increase to either $50 million or three times the value of the benefit obtained from the breach, whichever is greater.

Where the benefit of the breach cannot be ascertained, corporations will be liable to pay 30% of their adjusted turnover during the period from when a corporation is found to have committed the breach until they cease committing the breach (with a minimum period of 12 months).

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What can you do to prepare?

It is important to ensure that you and your business are prepared for the new and expanded unfair contract terms legislation. Businesses should ensure that their standard form contracts comply with Schedule 2 of the Act. With the increased penalty provisions, which have already come into effect, consequences for a breach of the CCA will be much more severe.

This article includes general information only and is not specific to your situation.

If you require assistance in relation to anything contained in this article including any specific incident, the review of existing policies or contracts, or the provision of employee training sessions, please contact us.