Penalties of up to $2.5 Million to Apply to Companies Relying Upon Unfair Contract Terms

As of 10 November 2023, a new unfair contract term (‘UCT’) regime will take effect in Australia.

Changes

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 attained royal assent on 9 November 2022 and will introduce a range of changes to both the Competition and Consumer Act 2010 (‘CCA‘) and the Australian Securities and Investments Commission Act 2001 (Cth).
The main amendments include:

• Broader Definition of ‘Small Business’

The UCT regime applies to standard form consumer contracts and small business contracts. Currently, a ‘small business’ is defined as an entity that employs less than 20 people. Under the new UCT regime, this definition will expand to entities that employ less than 100 people OR has a turnover of less than $10 million over the previous income year.

• Increased Civil Penalties

The maximum penalties for companies in breach of the CCA have been increased to the greater of:

1. $50 million;
2. 3x the value of the benefit obtained (if it can be determined); or
3. 30% of the company’s turnover during the period of the breach

The maximum penalty for individuals in breach of the CCA has been increased to $2.5 million.

• Greater Powers of the Courts

The new amendments grant the Court multiple new powers – these include but are not limited to:

1. Void, vary or refuse enforcement of a contract
2. Order an injunction to prevent a party from relying upon an unfair term or contract in the future.

• Determination of whether a Contract is a ‘Standard Form Contract’

The Court may now determine a contract is a standard form contract despite the existence of one or more of the following:

1. An opportunity for a party to negotiate changes to the terms of the contract, that are unsubstantial in effect.
2. An opportunity for a party to select a term from a range of options determined by another party.
3. An opportunity for a party to another contract or proposed contract, to negotiate the terms of the other contract or proposed contract.

• Penalties

Under the current regime, terms that were deemed to be unfair would only be void and enforceable; no other penalties would apply. Under the new changes, an entity will be prohibited from entering into a contract with an unfair term and/or relying upon an unfair term – if breached, the entity will be liable for penalties.

The maximum penalty for a company that breaches these new stipulations is $2.5 million.

What can you do to avoid being found guilty of unfair contract term use?

If your business relies on standard terms and conditions or standard form contracts, you should engage with a lawyer to have those reviewed to ensure they do not offend the current or impending regime.

How can DSA Law Help You?

If you require assistance in determining whether the new regime will affect you, or in determining whether a contractual term is enforceable or not, please reach out to the Commercial Law Team at DSA Law on (03) 8595 9580.