Important Updates for Unfair Contract Terms: What You Need to Know
Overview
The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) received Royal Assent on 9 November 2022 which will amend the Competition and Consumer Act 2010 impacting the legal regime of unfair contract terms.
The new amendments will come into play on 9 November this year and will have significant impacts on businesses and consumers expanding the scope of small business contracts and standard form contracts and introducing stricter penalties for non-compliance.
Standard Form Contract
The Competition And Consumer Act 2010 – Australian Consumer Law (“ACL”) governs standard form contracts for the supply of goods and services and the sale or lease of land and protects against unfair contract terms.
Unfair contract terms are those that generally:
- Cause a significant imbalance in the parties’ rights and obligations;
- Are not reasonably necessary to protect the legitimate interests of the party that would benefit from the term;
- Cause detriment to a party if applied or relied on; and
- Are not transparent.[1]
Ultimately it is up to the court to determine whether a contract is a standard form contract.
Under section 27(2) of the ACL, the court will look at whether:
- One party has all or most of the bargaining power;
- The contract was discussed between the parties prior to being drafted;
- A party was required to either accept or reject the terms of the contract in the form given;
- A party was given an opportunity to negotiate; and
- The terms of the contract take into account the specific characteristics of another party or the particular transaction
Examples of types of standard form contracts include agreements with mobile phone companies, photographers, gyms etc.
The upcoming amendments expand the scope of what can be considered a standard form contract and require the court to consider additionally “whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and, if so, how many such contracts that party has made”[2].
They also clarify that minor or insubstantial opportunities to negotiate changes, selecting a term from a range of options determined by another party, and the opportunity for a party to another contract to negotiate terms of the other contract does not exclude the contract from potentially being a standard form contract[3].
Small Business Threshold
The threshold for small businesses is expanding quite dramatically.
Under the current legislation, a small business contract is encompassed under the ACL if, at the time of entry into the contract, at least one party has 20 or fewer employees (including casual employees) and where the upfront price of the contract is less than $300,000 (or $1 million for contracts of 12 months of more)[4].
The amendments mean that the determination of a small business contract will change such to include agreements where at least one party must have 100 employees or less when making the contract in the course of carrying on its business or/and the small business will need to have an annual turnover of less than $10,000,000[5].
Penalties
Prior to the amendments, an unfair term under the threshold of the ACL would create a potential for the term in question to be disputed and set aside as unfair.
Section 23 of the ACL is expanded under the amendments to include culpability for applying, relying on, or purporting to apply or rely on an unfair term and to include pecuniary penalties[6].
The maximum penalty for companies being the greater of $50 million, three times the value of the benefit if the court is able to determine this or 30% of the adjusted turnover during the period of the breach, or the previous 12 months, whichever is longer. Alternatively, individuals may be liable for up to $2.5 million[7].
It is important to note that each individual term deemed unfair will be a breach and so a single contract may have multiple contraventions in it[8].
Further, the powers of the court have been expanded. If a court has declared a term to be unfair[9], it can order the whole or any part of the contract to be void, refuse to enforce any or all provisions, or to vary the contract and can do so retrospectively as well as being able to order injunctions. These powers extend to collateral arrangements relating to the contract[10].
Moving Forward
We anticipate that the Australian Competition and Consumer Commission will be rigorous in enforcing these new amendments and advise that businesses review all contracts to ascertain whether they will be deemed standard form contracts and if so, if there are any unfair contract terms that need to be amended.
We note the abovementioned amendments are not exhaustive.
For extensive advice on the matter or if you require guidance or assistance in relation to your business and its contracts, contact the experienced team at Miller Sockhill Lawyers on 07 5444 4750 and one of our friendly team members can answer any questions you might have.
The content of this article is current at the date of publishing and is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[1] Competition And Consumer Act 2010 – Australian Consumer Law Schedule 2 s 24(1)-(2)
[2] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s43
[3] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s44
[4] Competition And Consumer Act 2010 – Australian Consumer Law Schedule 2 s 23(4)
[5] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s47(a)
[6] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s1
[7] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 ss 11-13
[8] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s 1
[9] Competition And Consumer Act 2010 – Australian Consumer Law Schedule 2, s 250
[10] Treasury Laws Amendment (More Competition, Better Prices ) Act 2022 Schedule 2 s24