Key Updates to Australia's Unfair Contract Terms Regime
Australia's regulatory landscape for unfair contract terms (UCT) is poised for significant changes. Effective from 10 November 2023, the amendments will increase the ambit of the UCT regime, enhancing consumer and small business protections, while also amplifying the associated penalties for breaches. Let’s break down what this means for businesses.
A Brief Background
The Treasury Laws Amendment (More Competition, Better Prices) Act 2022, which came into effect on 9 November 2022, introduced a suite of changes to the Competition and Consumer Act 2010 (Cth) (CCA) and the UCT regime. A majority of these changes will be active from 10 November 2023, encompassing standard form consumer contracts and small business contracts initiated, varied, or renewed after this date.
Highlights of the New Regime
Penalties Amplified: Breaching the CCA now comes with stiffer penalties, reaching up to $50 million for corporations or 30% of adjusted turnover during the period of violation, and a hefty $2.5 million for individuals.
Illegalizing UCTs with Penalties: Before these amendments, UCTs, if deemed ‘unfair’, were simply treated as void. Now, crafting a contract with UCTs or leveraging them can lead to pecuniary penalties.
Expanded Definition of Small Business: From 10 November 2023, a small business will be characterized as one with fewer than 100 employees or annual turnover less than $10 million in the preceding income year.
Redefining ‘Standard Form Contracts’: The Act offers clarity on what shouldn't be regarded when determining if a contract is of ‘standard form’.
Empowering the Courts: Courts now hold enhanced authority, which includes inhibiting individuals from making or implementing contracts based on the UCT.
Definition of Unfair Term Remains Unaltered: The criteria for a term to be deemed ‘unfair’ remains consistent with prior regulations. It's essential to be aware of these terms, especially as the ACCC’s enforcement history showcases the kind of terms previously deemed as ‘unfair’.
Potential Unfair Contract Terms
By examining the ACCC’s past enforcement actions, some common contract terms that could be considered unfair include:
Automatic Renewal Terms: Such as rolling over contracts without notice.
Imbalanced Termination Rights: For instance, unilateral rights to suspend contract performance without notice.
One-sided Limitation of Liability or Indemnity Terms: Like very low liability caps.
Unilateral Variation Terms: Rights to unilaterally vary service levels or update terms without notice.
Unfair Payment Terms: Such as unilateral rights to vary fees.
Taking Proactive Steps
With the new amendments set to be activated on 10 November 2023, businesses should proactively review their standard form contracts. Ensuring compliance with the revamped UCT regime is crucial, especially given the heightened penalties in place.
While the changes may seem overwhelming, the aim remains clear: to foster a fairer business environment, particularly for consumers and small businesses. Preparing now will ensure smoother transitions later, safeguarding businesses from potential pitfalls and hefty penalties.