By Ethan Kilham

On 9 November 2023, significant changes to Australia's Unfair Contract Terms (‘UCT’) regime took effect.

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (‘Amending Act’) aims to strengthen consumer protections and enhance the regulation of unfair terms in consumer and small business contracts.

This article will focus on changes to the Competition and Consumer Act 2010 (Cth) Sch 2 (‘ACL’).

Consumer and Small Business Contracts

Consumer contracts are those that relate to the supply of goods and services or the sale/grant of an interest in land, to an individual, for personal, domestic or household use or consumption.

As of 9 November 2023, the Amending Act has expanded the ACL definition of a small business contract. These changes now provide that a small business contract is one concerning the supply of goods and services or the sale/grant of an interest in land, whereby one party to the contract is a business that employs fewer than 100 employees or has a turnover of less than $10 million.

Key Changes

Businesses should ensure that they are aware of, and compliant with, amendments to the UCT provisions of the ACL. Summarily, these are:

• Expanded definition of a small business contract as detailed above (see ACL s 23);

• New civil penalty provisions: Businesses that breach the unfair contract terms regime now face substantial civil penalties, being the greater of: $50 million, three times the value of the benefit gained, or 30% of the business's adjusted turnover during the breach period (ACL s 224 (3A)); and

• Expanded range of remedies available to the court: The court now has the power to void, vary, or refuse to enforce part or all of a contract, as well as issue injunctions to prevent businesses from entering into or relying on unfair contract terms (see ACL s 243, 243A and 243B).

What constitutes an Unfair Contract Term?

In determining whether a term is ‘unfair’, three main questions are asked:

1. Does the Clause cause a significant imbalance in the party’s rights and obligations arising under the Contract?

   A significant imbalance will be positively identified if the subject clause is weighted in favour of the supplier providing for advantageous rights and obligations under the contract (Director-General of Fair Trading v First National Bank Plc [2002] 1 All ER 97, [17]).

2. Is it reasonably necessary in order to protect the legitimate interests of the advantaged party?

   For an impugned clause to be regarded as reasonably necessary, it must be demonstrated to be required to protect the legitimate interests of the party relying on it. This must be able to be proven on the balance of probabilities by the party attempting to rely on the term (Turner v MyBudget Pty Ltd [2018] FCA 1407, [63]).

   What determines whether an interest is legitimate will vary, depending upon the nature of the particular business and the context of the contract as a whole (ACCC v ACN 117 372 915 Pty Ltd [2015] FCA 368, [925]). It need not be purely monetary, and may relate to the protection of goodwill and reputation or avoidance of litigation.

3. Would it cause detriment (financial or otherwise) to a party were it to be applied or relied on

   Detriment need not be solely financial and may be related to other forms such as time, convenience and emotional detriment (ACCC v Ashley & Martin Pty Ltd [2019] FCA 1436 [80]).

The court may also have regard as to whether the term was transparent, and the contract as a whole, in forming a view on whether a term is unfair.

Examples of terms which may be considered unfair, include:

• Automatic renewals;

• Unilateral variations (including of price);

• Wide indemnities;

• Broad limitations of liability;

• Early termination charges;

• Termination clauses;

• Non-disparagement clauses;

• Exclusivity provisions;

• Penalties;

• Rejection of goods / services; and

• Entire agreement clauses.

What do businesses need to do to be compliant?

If you are a business and use standard form contracts when supplying goods and services or selling/granting interests in land, it is crucial that you review the contract being relied upon.

If you are unsure, or believe certain terms may be considered unfair, it is important you seek legal advice on how best to proceed. In some instances, a simple redraft of the clause may be the difference between compliance and substantial civil penalties.

If you are an individual or small business who believes a UCT is being relied on to your disadvantage, we can assist you .

Disclaimer

The above does not constitute legal advice, but is information which may be of general interest. Beswick Lynch Lawyers will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.