The Time has Come – Changes to Unfair Contract Terms Laws!

With changes to the unfair contract terms (UCT) regime coming into effect as of 9 November 2023, all businesses should have reviewed their standard form agreements and terms and conditions to ensure they are compliant with the new legislation.  As outlined in our earlier article here, these changes under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) will:

1. Broaden the scope of application of the UCT regime under the Australian Consumer Law; and
2. Impose penalties on individuals and corporations proposing or relying on UCTs

Whilst the test for whether a contract term is unfair remains unchanged, businesses are now exposed to significant penalties if they rely on UCT.  A business that fails to comply with the changes to the UCT regime will face penalties calculated based on the greater of:

• AUD $50 million;
• three times the value of the ‘reasonably attributable’ benefit obtained from the conduct, if this can be determined; or
• 30% of adjusted turnover during the breach period, in circumstances where the reasonably attributable benefit cannot be determined.

For an individual who has breached the UCT Regime, the maximum penalty is $2,500,000. These new penalties stress the importance of ensuring that your documents are compliant under the regime.

How do I know if the changes apply to me?

The changes apply to small business contracts or consumer contracts that are in a standard form.   Under the changes, a “small business” is defined as a business who employs up to 100 people (increased from 20 people) or any business with an annual turnover of less than $10 million.

Unfortunately, the question of whether a contract is in a standard form can be a complicated one and there is no blanket rule in this respect.  Generally, standard form contracts are issued on a ‘take it or leave it’ basis and are prone to cause disadvantage to the other party.  Commonly this may take the form of terms and conditions which all customers of a business are expected to agree to, however there may be different forms of standard form contracts.  When determining whether a contract is in a standard form, the following factors need to be considered:

• whether there is a substantial power imbalance between the bargaining power of the parties;
• whether there are contracts with the same or similar terms between separate customers;
• whether there has been a genuine opportunity to negotiate the contract, and if changes have been made pursuant to those negotiations;
• whether the contract was prepared before any negotiations or discussions relating to the transaction were entered into; and
• whether the terms are specific to the transaction, or if they are broad in nature.

If a party alleges that a contract is in a standard form, it is presumed to be so, unless proved otherwise. If you are unsure as to whether the changes apply to you, you should err on the side of caution, noting the substantial penalties stemming from a failure to comply with the regime.  It is not a defence to mistakenly characterise a document as falling outside the operation of the regime.

What do I need to look at in my contracts?

The Australian Consumer Law provides examples of terms that may be unfair, including a term that permits one party (but not another party) to:

• avoid or limit performance of the contract;
• terminate the contract;
• penalise a party for a breach or termination of the contract;
• vary the terms of the contract;
• renew or not renew the contract;
• vary the upfront price payable under the contract without the right of another party to terminate the contract;
• unilaterally vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
• unilaterally determine whether the contract has been breached or to interpret its meaning; and
• assign the contract to the detriment of another party without that other party’s consent.

When reviewing your contracts, particularly in relation to the above rights and obligations, you should ensure that:

• consideration is given as to the impact of each term on the other party to the contract;
• terms are not unnecessarily broad;
• the terms of the agreements are specific to the particular transactions;
• where a term particularly favours one party, other terms should be included to balance the parties rights (for example, a term allowing the other party to end the contract);
• the language used is clear; and
• none of the important terms of the agreements are buried in the fine-print.

What else should I know?

Previously, the Australian Competition and Consumer Commission (ACCC) indicated in its 2023-24 Compliance and Enforcement Priorities that it will be prioritising enforcement of the UCT laws.  More recently, the ACCC has encouraged businesses to review their standard form contracts and make the necessary amendments before the new penalties take effect.

Businesses have had a 12-month transition period to make the necessary adjustments in light of the reforms and it appears that the ACCC will not act with further delay, ramping up its enforcement of the changes to the UCT regime from 9 November 2023.

Coulter Legal can assist in reviewing your existing terms and conditions and contracts to ensure compliance with the UCT regime, or draft new terms and conditions tailored to your business needs.

For further assistance, contact the Corporate and Commercial team today.