Background
With the introduction of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) it brought with it a raft of changes to Australia’s unfair contract terms (UCT) regime under the Competition and Consumer Act 2010 (CCA).
What is a UCT?
Whether a term is considered unfair will depend on the specific circumstances. However, the test for “unfairness” under the CCA is:
Terms which may be considered unfair include:
- terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract;
- terms that allow one party (but not the other) to end the contract;
- terms that penalise one party (but not the other) for breaching or ending the contract; and
- terms that allow one party (but not the other) to change the terms of the contract
What are the changes?
The changes brought about by the introduction of the Act include:
- prohibiting the proposal of, use of, application of, or reliance on, unfair contract terms in a standard form consumer or small business contract;
- introducing new substantial penalties for UCT’s in such contracts, being maximum penalties of:
- for businesses – the greater of $50million, 3 x the value reasonably attributable to the benefit from the UCT or 30% of adjusted turnover of your business for the breach period; and
- for individuals – $2.5million;
- clarifying the court’s powers and the factors the court must consider when determining whether a contract is a standard form contract;
- expanding the definition of small business and increasing the contract value threshold – note, only one of the parties to a standard form contract has to have fewer than 100 employees or less than $10million in annual turnover for the UCT regime to apply;
- clarification of Commonwealth, state or territory laws that are excluded from the UCT regime; and
- new categories of contracts which are excluded from the operation of the UCT regime.
Importantly, the previous position on UCTs was that if a Court found a term unfair then that term would be deemed void and unenforceable. Moving forward, a party could face a pecuniary penalty in addition to the term being deemed void and unenforceable.
Will the changes apply to my contract?
The changes introduced under the Act apply to:
- standard form contracts made or renewed on or after 9 November 2023; and
- a term of a contract that is varied or added on or after 9 November 2023.
Next Steps
Businesses should carefully review their own contracts and consider:
- Is it a standard form contract that falls within the changes brought about by the Act?
- Will the contract be used with consumers or small businesses (noting that the definition of small business has changed to a business with fewer than 100 employees or its annual turnover is less than $10 million)?
- Does the contract include any unfair terms?
Hitch Advisory is well placed to assist in reviewing and updating your standard form contracts to ensure you do not fall foul of the revised UCT regime. Do not hesitate to contact us on hello@hitchadvisory.com to discuss next steps.