It is now less than five months until the updated Unfair Contract Terms Regime will come into effect nationally on 9 November 2023.
Do you use standard form contracts containing terms that allow you but not your customer to:
- terminate the contract;
- vary key terms of the contract;
- vary the characteristics or nature of goods or services to be supplied;
- penalise the customer for a breach of the contract;
- limit a customer’s right to sue;
- determine if the contract has been breached;
- automatically renew or not renew the contract; or
- vary the upfront price payable without the customer having the right to terminate.
If so, a court may find these terms contravene the regime.
The amendments to the Australian Consumer Law (ACL) (Schedule 2 to the Competition and Consumer Act 2010 (Cth) (CCA)) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) will:
- Introduce fines for organisations that utilise unfair contract terms in their standard form contracts with consumers and small businesses.
- Expand the coverage of the Unfair Contract Terms Regime to include more businesses.
The Unfair Contract Terms Regime
A term of a consumer contract or small business contract is unfair if:
- it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Currently, where a court determines a term in a standard form contract to be unfair, that term is declared void and cannot be relied upon by a party to the contract, however no penalty applies.
But the new regime will impose penalties on businesses if they:
- enter into a standard form consumer or small business contract that contains an unfair contract term, and/or
- apply, rely or purport to apply or rely on, an unfair contract term contained in a standard form consumer or small business
Penalties will apply to each separate unfair term in the standard form contract that is entered into or relied upon.
The changes will also expand the class of “small business contracts” to which the regime applies.
| ACL |
small business contracts, irrespective of the value of the contract, where one of the parties, typically the customer, employs fewer than 100 persons or has an annual turnover of less than $10 million. |
|---|---|
| ASIC Act |
small business contracts where the upfront price payable does not exceed $5 million and one of the parties employs fewer than 100 persons or has an annual turnover of less than $10 million. |
Increased maximum penalties under the CCA and new penalties under the ASIC Act
The maximum penalties for breaches of certain provisions of the CCA and ACL have recently increased five-fold to:
| Companies |
The greater of
|
|---|---|
| Individuals |
$2.5 million |
Under the ASIC Act, the amendments will bring breaches of the Unfair Contract Terms Regime under the existing civil penalty provisions, imposing maximum penalties of:
| Companies |
The greater of
|
|---|---|
| Individuals |
The greater of
|
