The scope of the unfair contract terms (‘UCT’) regime has recently expanded. Businesses, including small business, are now potentially exposed to substantial penalties for any failure to comply with these regulations. These amendments take effect from 9 November 2023, under the Australian Consumer Law (‘ACL’) and the Australian Securities and Investments Commission Act 2001 (Cth).
The amendments prohibit businesses from proposing, using, or relying on UCT in standard form contracts with consumers and small businesses.
Breaches of the UCT provisions of the Australian Consumer Law can now face new and substantial consequences, including:
- Harsher penalties for the use of UCT; and
- Increased maximum penalties for breaches of ACL provisions.
The maximum penalties for breaching the ACL have increased to $50 million, or three times the value derived from the relevant breach. In addition, these amendments expand the protections given to consumers and small businesses that are a party to a small business contract. The definition of a small business has now increased from 20 people or less, to 100 people or less, as well as any business with an annual turnover of under $10 million.
The ACCC’s prosecution against several businesses under the existing unfair contract laws regime provides useful guidance to businesses regarding the kinds of terms that may be ‘unfair’.
What constitutes an unfair term:
- Significant imbalance on the parties’ rights and obligations;
- Not reasonably necessary to protect the legitimate interests of the party, whom the term would advantage; and
- Causes financial loss or detriment when applied or relied upon.
The Federal Court decision in ACCC v Fujifilm Business Innovation Australia Pty Ltd & Anor illustrates the key parts of a UCT. These include but are not limited to, automatic renewal terms, disproportionate termination terms, liability limitation terms, termination payment terms, unfair payment terms and unilateral variation terms.
A business may be susceptible to multiple breaches when different contract terms are identified as unfair, as each individual unfair term within a contract is treated as an independent breach. A business may find itself in contravention if the other party repeatedly applies or relies on the same unfair contract term in multiple instances.
These changes have been implemented to strengthen consumer protections and motivate businesses to take greater measures in ensuring their standard form contracts are constructed fairly. Greater contractual review and amendment can ensure compliance with the UCT requirements.
Consider the following tips when reviewing your business contract:
- Examine a term from both parties perspectives;
- Include counter-balancing terms;
- Avoid broad terms;
- Ensure terms meet your obligations under the ACL;
- Use clear language; and
- Be transparent.
Key Takeways
- If your business has 100 or less people, you are considered a small business and exempt from the UCT provisions.
- If you have 100 or more employees, it is important to consider:
- Your standard form contracts are reviewed, including specifically for conformity with the UCT provisions;
- the heavy fines imposed for a breach of the UCT provisions;
- each breach is treated separately and therefore care needs to be taken.
For additional advice and support, contact our experienced team of business experts on 02 4702 5905 or via the Contact Us page of our website.
