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Time to get ready for unfair contract terms changes (and higher penalties too)

The Competition team
31 Oct 2022
Time to read: 2 minutes

With the unfair contract terms prohibitions set to take effect within around 12 months, now is the time for consumer-facing businesses to carefully review their standard form agreements, and processes for proposing or purporting to rely on them.

Significant amendments to the Competition and Consumer Act 2010 – including the Australian Consumer Law – will soon be law, with the passage on Thursday of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, without amendments.

Increased competition and consumer penalties

With effect from the day after Royal Assent (expected to occur imminently, now that the Bill has passed), maximum penalties for anti-competitive conduct and contraventions of the ACL will increase substantially for conduct that occurs after the date of Royal Assent. For body corporates, maximum penalties will increase to the greater of:

  • $50 million (up from the current $10 million);
  • if the court can determine the value of the benefit obtained – three times the value of the benefit (unchanged from the current position); or
  • if the court cannot determine the value of the benefit – 30% of the adjusted turnover during the breach turnover period for the offence, act or omission (increase from the current position of 10% of annual turnover in the 12 months prior to the breach, to 30% of the adjusted turnover for the period of the breach).

For individuals, the maximum penalty will increase to $2.5 million (from $500,000 currently).

Separate prohibitions (and penalties) for unfair contract terms

With effect from around late 2023 (12 months after Royal Assent), the ACL will now prohibit:

  • making a contract with; and/or
  • applying, relying or purporting to apply or rely on,

an unfair contract term – with separate prohibitions for each unfair term in such a contract made or relied upon.

These penalty provisions will apply to new contracts only (or existing contracts, once they are renewed or varied) made at the end of a 12-month grace period after Royal Assent. This is designed to give businesses time to review and adjust their contracts and practices if required.

According to the Explanatory Memorandum, the amendments to penalise unfair terms in standard form contracts:

  • will apply to new contracts made at or after the commencement of the Bill (ie. at the end of the 12-month grace period);
  • do not apply to existing contracts made before the commencement of the Bill – however, if the existing contract is renewed at or after the end of the 12-month grace period, the reforms will apply to the contract as renewed on and from the day on which the renewal takes effect; and
  • will apply to a term of a contract varied after the commencement of the Bill. If there has not already been a renewal of the contract, the amendments will apply only to the term or terms that have been varied, on and from the day on which the variation takes effect, and as if the contract as varied had been made on the variation day.

Expanded scope of unfair contract terms regime

The unfair contract terms regime in the ACL will also be expanded to:

  • Definition of “small business contract” – Unfair contract terms protections will apply to a small business contract if one party to the contract is a business that employs fewer than 100 persons (up from 20 persons) or has a turnover for the last income year of less than $10 million. Currently, the threshold is determined by reference to the contract value (rather than the turnover of the supplier).
  • Determining “standard form” contracts – The amendments clarify that a contract may be “standard form” despite:
    • an opportunity to negotiate changes that are minor or insubstantial in effect;
    • an opportunity to select a term from a range of options (giving effect to previous decisions of the Federal Court, eg. ACCC v Chrisco); or
    • an opportunity for a party to another contract to negotiate terms of the other contract.

    • Key takeaways for businesses

    With the unfair contract terms prohibitions set to take effect within around 12 months, now is the time for consumer-facing businesses to carefully review their standard form agreements, and processes for proposing or purporting to rely on such agreements.

    This includes terms relating to data collection, use, retention, security and related matters, which we’re seeing (and have received feedback from other clients) are attracting significant and heightened scrutiny from the ACCC and other regulators (such as the OAIC and ACMA) in the current environment.

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    Australian Consumer Law Competition
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    Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.