Changes to Unfair Contract Terms – Is Your Business Ready?
Businesses employing standard documents to contract with customers and suppliers take note. In less than 6 months, the expansion of Australia’s unfair contract terms (UCT) regime under the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) is set to take effect. From 10 November 2023, the changes will expand the scope of application and introduce substantial penalties and enforcement action for non-compliance.
The new regime has expanded its reach and will now apply to a significantly larger number of contracts. This means that even those who were previously unaffected by the UCT need to consider whether their contracts are standard form contracts and review the terms as covered by the new regime.
What is a standard form contract?
Standard form contracts are typically pre-prepared by one party and offered to the other on a take-it-or-leave-it basis, without the opportunity for negotiation. It's important to note that an alleged standard form contract is presumed to be a standard form contract unless the respondent proves otherwise. Some examples of standard form contracts include, but are not limited to:
· contracts for the supply of goods or services
· retail lease agreements
· financial products or services contracts
· insurance contracts
· contracts for the sale or grant of an interest in land
What are the main changes to the Act?
The definition of a small business
Small businesses will be covered by the unfair contract terms protections for any new or varied standard form contract from 10 November 2023. The definition of small business will be expanded to include businesses with fewer than 100 employees or less than $10 million in annual turnover in the previous income year. There is no longer a value threshold, so it will apply to all small business contracts.
The court now has expanded powers
Under the previous regime, the court had the authority to deem an unfair term in a standard form contract as void, rendering it unenforceable. Under the new regime, in addition to declaring unfair terms void, the court can also issue orders to void, modify, or refuse to enforce the entire contract. Furthermore, the court can prohibit the future use of the same or a substantially similar unfair term in contracts.
Increased penalties
The amendments will raise the maximum penalties for Competition and Consumer Act (CCA) violations. For body corporates, the penalty is now the larger of $50 million, three times the value of the benefit gained from the breach (if quantifiable), or 30% of adjusted turnover during the breach period (minimum of 12 months). Individuals face a penalty of $2,500,000.
Changes to assessment of ‘standard form contracts’
To determine if a contract is a standard form consumer contract, a court may consider various factors, including whether one party holds most of the bargaining power, if the contract was prepared before any discussion occurred, if the other party had to accept or reject the terms as presented, if they had a chance to negotiate, and if the terms consider specific characteristics.
When will the changes take effect?
The expanded UCT regime will apply to standard form consumer contracts and small business contracts: (i) entered into from 10 November 2023; or (ii) renewed or varied from 10 November 2023.
With just six months until the changes come into effect, we recommend businesses review their standard contract documents to ensure that they comply with the updated UCT regime. This will involve identifying any unfair contract terms and making necessary changes to ensure that they are fair and reasonable.
What can I do?
Dealing with consumer law demands can be challenging, especially if you are unfamiliar with the legal complexities. We are here to help.
Based on the Sunshine Coast, our leading law firm specialises in business and commercial law. With many years of experience advising business owners, we can provide legal advice and representation on all matters relating to business contracts and compliance.
Contact Bradley & Bray today to get started.
This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers takes no responsibility for any use of the information provided in this article.
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