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Changes to the Unfair Contract Terms regime – 9…

On 9 November 2023 changes come into effect in relation to Unfair Contract Terms (UCT) laws.

The UCT laws, contained in the Australian Consumer Law and the ASIC Act apply to standard form consumer and small business contracts.

The amending legislation introduced significant changes to the unfair contract terms including onerous penalties.

What are the changes to the UCT laws?

1. Expanded application of the UCT regime to a broader range of contracts

• There is now no contract value threshold – the UCT regime applies to all standard form contracts regardless of the value of the contract.
• The definition of who is a small business (who has the benefit of the protections) has been expanded to include businesses that employ fewer than 100 employees (FTE) OR have less than $10 million in annual turnover in the previous income year.

2. Expansion of the offence – it is an offence to:

• enter into a standard-form consumer or small business contract that contains an unfair term; or
• seek to rely on an unfair term in a standard form consumer or small business contract.

3. New penalties:

If you enter a new contract (or change an old contract) after 9 November 2023 and a term is found to be unfair, the following penalties may apply:

• If you are a company: $50 million; three times the benefit received; or 30% of the adjusted turnover during the period of the breach, or the previous 12 months, whichever is longer.
• If you are an individual: the maximum penalty will be $2.5 million.

4. Further remedies

The court may also:

• void the clause;
• make orders to prevent or reduce loss or damage that may be caused by the term;
• prohibit the clause (or similar clause) being used again; or
• issue injunctions.

Unfair contract terms

Generally, a contract term may be considered unfair if it:

• causes a significant imbalance in the rights and obligations of the parties;
• is not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term; and
• would cause financial or other harm to the other party if enforced.

For example, the following may be deemed to be unfair:

• allowing the service provider to unilaterally vary the price or terminate the agreement;
• some automatic renewals;
• requiring acknowledgement of clauses that are complex and not easy to understand;
• incorporating into the contract other contractual terms and documents that cannot be easily found;
• unreasonable liability caps and reduction of supplier’s liability;
• broad or unreasonable indemnities in favour the service provider;
• allowing one party, but not the other to:
• avoid or limit their responsibilities under the contract;
• end the contract;
• breaching the contract;
• change the terms of the contract.

It is also important to note that a court can determine that a contract is a standard form contract even if the other party could negotiate it.

Excluded Contracts

There are some contracts to which the unfair contracts provisions do not apply including:

• contracts for financial services or for financial products, including insurance contracts, however, private health insurance contracts are covered;
• constitutions of companies; and
• contracts for the shipping of goods.

Conclusion

The new changes to the Unfair Contract Terms regime are extensive. Please feel free to contact us if you require any advice regarding which of your contract arrangements (if any) may be caught by the expanded definitions of small business contracts and standard form contracts and how to minimise the risk of your contracts being found to be standard form, or terms being unfair.