Is your business ready for the new Unfair Contract Terms regime?

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Following the passing of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) the new Unfair Contract Terms (UCT) regime will dramatically change Australian consumer law from November 2023.

The new laws will significantly increase the scope of existing UCT laws increasing penalties and will make it illegal to include or propose a term which is unfair in a far greater range of business contracts.

The Australian Competition and Consumer Commission (ACCC) Chair Gina Cass-Gottlieb said in relation to the new penalty provisions that they:

should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers” and “will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders”.

Businesses will have until November 2023 to review and update their standard contracts to ensure they are complaint.

The new penalties

The new regime will increase maximum penalties under the Competition and Consumer Act 2010 (Cth) (CCA), including the Australian Consumer Law (ACL).

What does this mean for a corporation or an individual?

For a corporation the new penalty will be the greater of:

  • $50 million;
  • Three times the value of the benefit obtained; or
  • Where the value of the benefit cannot be determined, 30% of the adjusted turnover during the breach turnover period for the act or omission.

The ‘breach turnover period’ is the relevant period from when the business is found to have begun committing a contravention to when it ceased doing so, with a minimum period of 12 months.

For an individual it will be $2.5 million.

These are increases of over 500% relative to the previous penalties.

The important changes

These changes will affect all contracts after 9 November 2023 including:

  • any new contract; and
  • any existing contracts that has its terms is renewed or varied

Previously if there was a UCT the business was not subject to a penalty but rather the UCT was void.

However, under the new regime a penalty will apply to proposing, applying or relying on terms which are unfair in standard form contracts with consumers or small businesses.

The definition of ‘small business’ is now one which employs fewer than 100 persons or has turnover of less than $10 million (or both), whereas previously it applied only to businesses that employed fewer than 20 persons and where the upfront price payable under the contract was less than $300,000 for shorter contracts, or $1,000,000 for multi-year contracts.

Further the new regime outlines what a court must consider when it is determining if it is a standard form contract and includes:

  • whether a party has previously entered into another contract that is the same or substantially similar (and if so, the number of times this has been done); and
  • when determining whether a party was able to genuinely negotiate a contract, a court is to disregard instances where a party:
    • can negotiate changes that are minor or insubstantial in effect;
    • is able to select a term from a range of options determined by another party; or
    • was a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract. 

Courts in addition to the power to impose civil penalties will also be able to make more flexible orders to prevent or reduce loss or damage in relation to the UCT.

How can FC Lawyers assist?

The business and commercial team at FC Lawyers has been helping business both large and small for nearly 30 years.

The year ahead will be an import time to ensure your business is ready for these unfair contract terms and legislative changes and that your standard form contracts are in order. Do not leave it until the last minute!

Contact our team to discuss your needs and how we can help to review your current contracts and assist in ensuring that your business complies.

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