Penalties to be introduced for unfair contract terms

Penalties to be introduced for unfair contract terms

Legislation has been passed to amend the provisions of the Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law (ACL) to enhance protections for individuals
and small businesses against unfair contractual terms.
An unfair contract term is a clause which causes a significant imbalance between the parties to a standard form contract, is not reasonably necessary to protect the legitimate interests of the party imposing it and causes a detriment to the other party if relied upon.

Whilst protections against unfair terms already exist under the ACL, prior to these amendments there were no financial penalties imposed on the party that relied on them.
Practically speaking, this meant an aggrieved party would have to apply to the Courts to have the unfair term declared void. The new provisions mean that an entity which imposes or relies on an unfair contract term could be liable, for penalties of up to $2.5 million for an individual or, for a body corporate,
the greater of:

1. $50 million;
2. Three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
3. if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

A standard form contract between businesses will be captured by the ACL’s unfair contract provisions where at least one party to the contract is a ‘small business’. The Bill increases the scope of the protections by expanding the definition of a ‘small business’ to include a business that:

1. employs less than 100 people; or
2. has an annual turnover of less than $10 million.

Standard form contracts are commonly those which are prepared by one party who has greater bargaining power than the other and where the contract is not open for negotiation.
The Australian Competition and Consumer Commission Chair, Ms Cass-Gottlieb, was pleased with the changes, stating:

“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers. However, by definition, these contracts are largely imposed on a ‘take it or leave it” basis. The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power”.

Businesses dealing in financial products should also be aware that similar amendments have been made under the Bill to the unfair contract provisions of the Australian Securities and Investment Act 2001 (Cth).

Anyone using a standard form contract in their business should revise their contracts and amend or remove any offending unfair terms before the 12-month grace period provided under the Bill ends on 9 November 2023. It is very common for standard form contracts to contain unfair terms. Accordingly, all businesses should have their contracts reviewed.

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If you would like a free assessment of your standard form contract please do not hesitate to contact us on (07) 5444 5496 or via [email protected]