separation of unfair and fair

From 10 November 2023, changes to the Australian Consumer Law will substantially alter the landscape of standard-form contracts within Australia. Previously, there were no severe ramifications for businesses that included unfair contract terms within their standard-form contracts, with Courts only able to declare a specific term unfair and therefore void. Moving forward, the changes will allow the Courts to impose substantial penalties on businesses and individuals who include these clauses within their standard-form contracts and broaden the range of businesses to which these contracts are relevant.

Background

On 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) introduced a significant amount of changes to the Competition and Consumer Act 2010 (Cth) (the “Act”) and the unfair contract terms regime outlined within that Act.

Most of the changes to the unfair contract terms regime were subject to a 12-month transition period, which concludes on 10 November 2023. This expanded regime will apply to all standard-form and small business contracts entered, renewed, or varied from 10 November 2023.

Changes to the legislation

The changes introduced reflect an increased need to protect consumers and small businesses from unfair terms in standard-form contracts. The main changes are:

Definition of small business

An amendment to the classification of small businesses will also mean that these rules now apply to any contract with a business with less than 100 employees or with an annual turnover of less than $10 million dollars. This is a significant broadening of the definition, as previously, a ‘small business’ was considered to be a business with less than 20 employees and where the contract had an upfront cost of less than $30,000.00 or under $1 million dollars for a contract lasting over 12 months.

Increased Penalties

Furthermore, the penalties have increased dramatically, with the maximum penalty for companies that have breached the terms increasing to the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30% of the company’s turnover during that period. The penalty for an individual has also increased to $2.5 million dollars.

Assessment of standard-form contracts

There will now be certain factors that the Court will consider when assessing whether a contract is a standard-form contract. This includes whether a party had the opportunity to:

  • negotiate minor changes;
  • select a term from a range of options; or
  • negotiate the terms of the contract in its entirety.
What does ‘unfair’ mean?

A term of a contract is considered unfair if it:

  • Causes significant imbalance in the parties’ rights and obligations;
  • Is not reasonably necessary to protect the interests of the party advantaged by the term; and
  • Would cause detriment to the other party.

The Court has a significant amount of discretion in determining whether a clause is unfair; hence, they are determined on a case-by-case basis. Whilst the legislation does not include a list of terms that are automatically considered unfair, it does include a long list of clauses that may be unfair.

Moving forward

It is vital that you have the terms of your standard-form contracts reviewed before the changes take effect on 10 November 2023, with any contract entered into after that date subject to those new changes. If you would like us to review the terms and conditions in your business’s standard-form contracts or would like new terms and conditions prepared, do not hesitate to get in touch with our office on (08) 8186 1735.

The following information is general information only and is not and does not constitute legal advice. If you rely on the information herein, you do so at your own risk. For legal and tailored advice for your specific situation and circumstances, please contact us directly.