Unfair Contract Terms changes: Is your business ready?

In late 2022, the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed both houses of federal parliament. The relevant laws take effect from 9 November 2023 and significantly bolster the Unfair Contract Terms (UCT) regime in Australia.
For business owners and manager who are unfamiliar with the UCT regime, now is the time to revisit these laws.

Unfair Contract Terms
UCT laws have been in place since 2010 for consumer contracts, and since 2016 for ‘small business contracts’.
The purpose of the UCT laws is to prevent reliance on unfair terms in standard form contracts when dealing with consumers and small business.

Unfair contract terms are those which, if relied on:
(a) would cause a significant imbalance to the parties’ rights and obligations arising under the contract;
(b) are not reasonably necessary to protect the legitimate interests of a party;
(c) would cause detriment to the other party.
Examples of Unfair contract terms include:
(a) automatic renewals and contract rollovers;
(b) disproportionate or unilateral termination rights;
(c) provisions which seek to unreasonably limit a party’s liability (such as ‘blanketdisclaimers)
(d) excessive termination fees;
(e) rights of one part to unilaterally vary the contract terms or fees.
Until now, businesses which contain UCTs in their standard form contracts were unable to rely on such terms. In other words, those terms were unenforceable.

Changes from 9 November 2023
From 9 November 2023, it is an offence to enter a standard form consumer or small business contract which contains UCTs. Courts will have the power to impose penalties simply for having an UCT in a consumer or small business contract. The maximum penalty that can apply (per contravention) is the greater of:
(a) $50 million;
(b) three (3) times the value derived from the UCT; or
(c) 30% of the adjusted turnover of the offending business during the period of the breach, or previous 12 months, whichever is longer.
The changes also extend the meaning of a ‘small business contract’ to cover a much larger array of businesses. The new definition of a ‘small business contract’ includes contracts for the supply of goods, services, or interests in land where at least one party employs fewer than 100 persons or a party’s turnover is less than $10million.
In practical terms, many if not most business will regularly enter into either consumer contracts or ‘small business contracts’ as defined under the new laws. This means that standard form ‘T&Cs’ must be carefully scrutinised to avoid inclusion of UCTs which may not only be void, but also now attract prosecution and penalties.

Types of contracts that may be affected
The types of ‘small business contracts’ that are potentially affected by UCT laws are very broad. Provided that the threshold requirements are met (as above), UCT laws may apply to standard terms and conditions for the supply of goods and services, end user licence agreements, standard T&Cs, leases, franchise agreements, equipment hire contracts, subcontractor agreements, construction contracts and contracts for financial products.

Contracts entered into before 9 November 2023
The new laws and penalties will not apply to contracts entered into before the new laws commence on 9 November 2023, however:
(a) if an affected contract is renewed after 9 November 2023, the laws will apply to the renewed contract;

(b) if an affected contract is amended after 9 November 2023, the new laws will apply to the amendment.
Notwithstanding the above, if a business is concerned that their standard form contracts contain unfair contract terms, advice should be sought about the affect of the current UCT laws in any case.

At NB Commercial Law we offer standard form contract UCT reviews, and full contract reviews.

Written by

Daniel Dash, Senior Associate

Daniel is part of the commercial law team at NB Lawyers – lawyers for employers working with individuals and business owners on a range of matters including business sales, buisness structuring, commercial contracts, corporations law, litigation, franchise law, intellectual law and taxation.

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