Changes and New Penalties – Australia’s Unfair Contract Terms Law

In November 2022, Parliament passed the amendments giving businesses one year to prepare for the changes. With the effect of the changes now imminent, it is essential that you understand what the changes mean, and ensure that your business is prepared!

The key changes

In essence, these new laws are intended to broaden the scope of the existing  laws around unfair contract terms, including introducing or increasing penalties under the Australian Consumer Law.

The changes apply to standard form contracts with consumers or small businesses.

Here’s an overview of the key changes:

• the introduction of civil penalties for the use of, and reliance on, unfair contract terms by businesses;
• the expansion of what is classed as a ‘small business’ and more detail about what is considered a ‘standard form contract’;
• expansion of protections to small businesses that are party to a small business contract
• the onus is on companies to ensure compliance with the regime – there is no defence for companies who breach the new requirements.

It is expected that the ACCC and ASIC will prioritise enforcement of the new penalties once these changes commence on 9 November 2023, to help regulate business practices, protect consumers, and ensure fair competition in Australia.

What is a ‘standard form contract’?

A standard form contract is usually a contract that is repeatedly used with customers/consumers, without any change to, or negotiation of, the terms. Examples of standard form contracts include standard terms and conditions of sale or provision of services.

If a contract is fully negotiated with another party, if is not usually considered to be a standard form contract.

There are exceptions and exemptions, so it is important to seek legal advice if you are unsure.

Who do the changes impact?

All businesses that use standard form contracts in dealings with either consumers or small businesses will be impacted. Whether this is for the supply of goods or services, the sale or lease of land or the supply of financial services or financial products.

The changes to the definition of a ‘small business’

Up until 9 November 2023, a ‘small business’ for contract purposes is deemed to be a business that employs less than 20 people, AND the contract must not exceed $300,000 if the duration of it is less than 12 months, or must not exceed $1 million if the duration is longer than 12 months.

From 9 November 2023, a business is deemed to be a ‘small business’ for the purposes of new law, if it:

• employs 100 people or less
• Has an annual turnover of less than $10 million.

The penalties

There are significant penalties for companies that enter into contracts with small businesses or consumers that are found to have unfair contract terms from 9 November 2023.

A summary of the penalties is below.

Companies will be liable to a maximum penalty the greater of the three options below:

• $50 million (increasing from $10 million);
• Three times the value of the benefit to the company if that can be determined;
• 30% of the corporation’s turnover during the offence period.

Individuals

• $2.5 million (increasing from $500,000).

What about existing contracts?

Existing contracts will not be affected unless any term of the contract is varied after 9 November 2023. The effect of amending a term of a pre-existing contract is that the whole of the contract will be subject to the new laws.

Businesses should also be mindful of when a contract arises. For supplies of goods or services to existing customers, each transaction might constitute a new contract and be caught by the new laws even if the relationship has been ongoing for many years.

Preparation for Implementation

If your business uses standard form contracts, and/or you deal with consumers or with small businesses under the new definition from 9 November 2023, you should have your contracts reviewed to ensure they do not include any unfair contract terms.

It is expected that the enforcement of Unfair Contract Terms will be a priority for both ACCC and ASIC from 10 November 2023, so there is likely to be increased scrutiny from this date.

Get in touch

Our Business and Commercial Law team can help with the review of your contracts to ensure you comply with these upcoming amendments. In addition, we can draft contracts, monitor the performance or adherence to contract terms, and should it be necessary, can assist with contract termination and any potential legal remedies that might arise should a breach have occurred.

To discuss any aspect of these changes, please contact Lauren Roberts on (08) 8212 1077 or lroberts@tgb.com.au or any member of our Business & Commercial law team on (08) 8212 1077 in South Australia, (08) 9211 5800 in Western Australia or (08) 7929 1000 in the Northern Territory.