Important changes to unfair contract terms laws

Treasury Laws Amendment (More Competition, Better Prices) Bill 2022

WHAT HAS HAPPENED?

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill) has now passed through both Houses of Parliament and, as of 9 November 2022, has received Royal Assent.  The Bill amends both the Competition and Consumer Act 2010 (Cth) (the CCA) and the Australian Securities and Investments Commission Act Cth) (ASIC Act).

EXPANDED SCOPE

Where the Australian Consumer Law applies, the amendments will remove financial threshold assessments which currently apply to relevant contracts. As a result, the laws will apply to any standard form contract with a ‘small business’. The definition of a small business will be broadened and will now capture businesses with:

  • less than 100 employees; or
  • less than $10 million in annual turnover in the previous income year.

 

PROHIBITIONS ON UNFAIR CONTRACT TERMS

Contracting parties will be prohibited from including, applying or relying on unfair contract terms in standard form contracts with consumers or small businesses. Rather than such terms simply being void, businesses seeking to rely on unfair contract terms may be subject to large penalties introduced by the new law.

 

STANDARD FORM CONTRACTS

Clarity is also provided in determining whether the relevant contract is a standard form contract, including whether the party has used the same or similar contract. The contract may be a standard form contract despite the party’s ability to:

  • negotiate changes that are minor or insubstantial in effect;
  • select a term from a range of options determined by another party;
  • be a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

 

PENALTIES

Maximum penalties under both the CCA and the ACL are significantly increased (with immediate effect).

Current New Penalties

For a body corporate, the greater of:

  • $10 million;
  • If the court can determine the value of the benefit obtained, 3 times the total value of the benefit; or
  • If the court cannot determine the value of the benefit obtained, 10% of the annual turnover during the period of the breach, or the previous 12 months, whichever is longer.

For a body corporate, the greater of:

  • $50 million;
  • If the court can determine the value of the benefit obtained, 3 times the value of the benefit; or
  • If the court cannot determine the value of the benefit obtained, 30% of the body corporate’s adjusted turnover during the breach turnover period, or the previous 12 months, whichever is longer.
For individuals, the maximum penalty is $500,000. For individuals, the maximum penalty is $2.5 million.

 

TRANSITIONAL PERIOD

The prohibitions in respect of unfair contracts will commence on 10 November 2023.  As well as new contracts, it will also apply to those which are renewed or varied after this date. The amended penalty regime will apply to offences committed, or contraventions, acts or omissions that occur on or after 10 November 2022.

 

NEXT STEPS

Businesses should be on the front foot in reviewing all standard form contracts, considering their negotiating positions and playbooks and implementing changes in anticipation of these new laws.

If you’d like to know more, contact Hive Principal Adrienne Trumbull at [email protected] for advice that is tailored to you and your organisation.