Reminder: Check your standard form contracts – one month until amendments come into force

Purpose

The Australian Consumer Law (ACL) is a national law that, amongst other things, includes protections for consumers and small businesses when buying goods and services in Australia. The ACL includes a regime in relation to ‘unfair contract terms’ (UCTs). This regime is soon to be enhanced and businesses/suppliers need to be ready.

On 9 November 2023 the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Amendment Act) (UCT Amendments) comes into force. It will apply to contracts that are entered into or renewed/varied on or after 9 November 2023. We previously provided insight on this issue when at the Bill stage in October 2022.

The ACL currently ensures that a UCT in standard form contract with a consumer or small business involving the supply of goods or services or the sale or the grant of an interest of land, is unenforceable. Similarly, the Australian Securities and Investments Commission Act 2001 (ASIC Act) applies the same rules in relation to UCTs where the supplier provides financial or insurance products/services.

These laws provide consumers and small businesses with protections against draconian clauses which may be included in standard form contracts due to an inherent imbalance in bargaining rights.

Is your contract term unfair?

As outlined by Australian Competition and Consumer Commission (ACCC), a contractual term is unfair if it:

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

What are the new changes?

Currently, there is no prohibition against including an UCT in standard form contract only laws that will prevent a party from relying on an UCT if it is challenged. From 9 November 2023, businesses will be in contravention of the ACL if they have an UCT in their standard form contract and exposed to the penalty regime discussed below.

Additional changes introduced by the UCT Amendments are a widening of the scope of the regime itself, an increase in the remedies available, and significant penalties in relation to UCTs included in contracts entered into on or after 9 November 2023.

Scope

• There will no longer be a contract value threshold under ACL[1] and so the UCT Amendments will apply to applicable contracts, irrespective of the contract value.
• The relief available to those disadvantaged by an UCT is being enhanced.
• More small businesses will be within the regime as ‘small business’ will now be defined to include a business that employs fewer than 100 employees or those that had less than $10 million in annual turnover in the previous income year. This amendment will significantly increase the number of Australian businesses that fall under the definition of ‘small business’ given the previous 20-person employee limit.

Court remedies

• Empowering the courts to make adverse publicity orders and disqualify individuals from managing corporations for breaches of the UCT provisions;
• enabling courts to make orders voiding, varying or refusing enforcement of whole contractual arrangements if appropriate, as opposed to the earlier, more narrow ability to void specific terms of contracts;
• allow the court to order that an UCT be excluded from future contracts and prevent or reduce likely loss caused as a result; and
• allow the court to grant injunctions to prevent individuals to enter future contracts and/or rely on existing contracts that have a similar unfair term.

Penalties

The civil penalty provisions that will apply to breaches the ACL include:

• up to a maximum of $2,500,000 for individuals;
• for body corporates, the greater of:
  • $50,000,000; or
  • if the court can determine the value of the benefit obtained – three times the value of that benefit; or
  • if the court cannot determine the value of the benefit obtained – 30% of the body corporates adjusted turnover during the breach turnover period for the offence, act or omission (see s25 of the UCT Amendments for a breakdown of the pecuniary penalties now in place).
• under the ASIC Act, 5,000 penalty units ($1,565,000) for individuals and 50,000 penalty units ($15,650,000) for body corporates.[2]

Way Forward

If you have not already, now is the time to consider whether your business utilises standard form contracts and whether you contract with a ‘small business’ and/or consumers and consider whether any of the terms of such contracts may be considered an UCT. The courts will no longer consider certain factors that allowed for concluding that a contract was not a standard form contract in the past so there is a heightened risk in this regard. Be especially careful also to consider the size of your ‘small business’ clients given the widening of the regime to include larger small businesses within the protection of the ACL.

It is unlikely that the ACCC will be sympathetic to those who fail to proactively review their contracts given the transitional phase that was in place before the UCT Amendments coming into force on 9 November 2023. McCabes has extensive experience advising clients in relation to their standard form contracts. If you are unsure whether you or your standard form contracts will be impacted by the UCT Amendments, reach out to McCabes and we can assist.

[1] Under the ASIC Act the maximum value to qualify as a small business contract is now $5M.

[2] The value of a penalty unit increased on 1 July 2023 from $275 to $313.