Changes to the Unfair Contract Terms by ACCC

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Is your business prepared for the sweeping alterations to Unfair Contract Terms (UCT) mandated by the Australian Competition and Consumer Commission (ACCC)?

These modifications entail substantial enhancements to the existing UCT regulations, marked by more rigorous penalties and meticulous oversight of specific contract terms across a spectrum of business agreements.

The primary aim behind these amendments, particularly the heightened penalties, is to function as a formidable deterrent. Businesses are expected to diligently uphold their commitments, refrain from misleading conduct, and act with utmost fairness towards consumers. Furthermore, these revisions empower the courts to ensure that penalties for contravening competition and consumer standards are not perceived as a mere cost of conducting business but are, regarded as a vital reminder for business owners and shareholders.

In essence, these changes will impact all enterprises that employ standard-form contracts in their interactions with consumers and other small businesses, especially in the contexts of:

  • providing goods or services
  • selling or leasing real estate
  • supplying financial services or products

What are the new changes for Unfair Contract Terms?

Under the Australian Consumer Law (ACL), the UCT regime now extends to small-business contracts when one party to the contract is a business that either:

  • employs less than 100 individuals
  • reports a turnover of less than $10 million for the previous fiscal year.

Similarly, under the Competition and Consumer Act 2010 (Cth) (the Act), the updated UCT regime encompasses small business contracts under these conditions:

  • one party to the contract is a business that either:
    • employs less than 100 people
    • reports a turnover of less than $10 million for the last fiscal year
  • the upfront price payable under the contract does not exceed $5 million

New penalties

The revised penalties under the ACL and the Act are notably substantial. For companies, the penalties have increased to:

  • $50 million (previously $10 million)
  • three times the value of the benefit to the company if ascertainable
  • 30% of the corporation’s turnover during the period of the offense (formerly 10% of the annual turnover only in the 12 months prior to the breach).

Conversely, for individuals, the penalty has surged to $2.5 million (formerly $500,000).

These penalties will exclusively apply to newly executed contracts, renewals, or modifications of existing contracts commencing on or after 9 November 2023.

The transformative nature of these changes bestows new powers upon the courts, including:

  • The authority to void, modify, or decline enforcement of a contract if doing so is necessary to prevent foreseeable loss or harm arising from the UCT.
  • The capacity to preclude the inclusion of a term similar to one declared as unfair in future standard-form small business or consumer contracts.
  • The capability to mitigate potential loss or harm caused by a substantially unfair term.
  • The ability to grant injunctive relief to inhibit a party from applying or relying on a term in the contract that has been declared unfair.
  • The power to provide injunctive relief restraining a person from entering into future contracts or applying/relying on a term of an existing contract containing a term declared unfair.

Consequently, businesses should anticipate heightened scrutiny from the ACCC concerning UCTs. Both corporations and individuals must examine their contracts meticulously to ensure strict compliance with the new regulations.

If you seek assistance in reviewing your contracts ahead of the impending deadline, please do not hesitate to contact us.

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