Changes to the Unfair Contract Terms regime

From 9 November 2023, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) was passed which introduced a number of key changes to the unfair contract terms (UCT) regime under the Australian Consumer Law (ACL).

Penalties for Unfair Contract Terms

New maximum financial penalties were introduced to penalise businesses that include unfair contract terms in their standard form contracts.

The new maximum financial penalties for businesses are the greater of:

·         $50,000,000;

·         Three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or

·         if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

This is a significant change to the current position where no penalties have been imposed, and the term found to be unfair only deemed void. Under the new regime the Court can also make orders to void, vary or refuse to enforce the contract, while also imposing a penalty.

Increased coverage

The UCT regime will now apply to standard form small business contracts where at least one party either:

•               employs fewer than 100 persons

•               has an annual turnover during the previous financial year of less than $10 million.

Clarity of terms

The changes introduced clarity to a number of areas of the unfair contract terms. This includes:

•               further details about what constitutes a standard form contract, including that a contract may still be a standard form contract even when:

a.             the small business has the opportunity to negotiate changes to the contract, provided the changes are minor or insubstantial

b.             the financial services provider allows the small business to select a term from a range of pre-prepared options, and/or

c.             the small business is entering into both the first contract and another contract with the financial services provider, and has the opportunity to negotiate terms for that other contract

•               clarity that the remedies available for ‘non-party consumers’ also apply to ‘non-party small businesses

What is an unfair contract term?

A term of a contract is considered unfair if it:

1.     causes a significant imbalance in the rights and obligations of the parties under the contract;

2.     is not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term; and

3.     would cause financial or other harm to the other party if enforced.

In the recent case of ACCC v Fujifilm Business Innovation Australia Pty Ltd the Federal Court of Australia held that 38 contract terms used in standard form contracts were unfair.

The types of terms declared unfair and void included:

•               Automatic renewal terms: permit Fujifilm to renew the contract for a further period unless customers cancel the contract a certain number of days before the end of the contract term.

•               Disproportionate termination terms: allows Fujifilm to terminate the contract in a significantly wider range of circumstances than those which allow the customer to terminate the contract, if any.

•               Liability limitation terms: limit Fujifilm’s liability or require the customer to indemnify Fujifilm without corresponding rights for the customer.

•               Termination payment terms: require customers to pay extensive exit fees to Fujifilm in the event the contract is terminated, including certain charges which Fujifilm can set unilaterally.

•               Unfair payment terms: require customers to pay Fujifilm for software licensed pursuant to the agreement irrespective of whether Fujifilm has delivered the software and, when goods are purchased, to pay the purchase price prior to delivery.

•               Unilateral variation terms: permit Fujifilm to unilaterally vary some terms of the contract including the charges and terms contained in documents other than the signed contract

Next steps

With the introduction of penalty provisions, we are encouraging all businesses to review your current contracts to ensure compliance with the UCT regime.

If you require assistance in reviewing your current contracts, please get in touch with Hart and Co today.