The Changes to Unfair Contract Terms Legislation From 10 November 2023

Authors: Zeinab Farhat & Gianluca Pecora, Progressive Legal

On 9 November 2023, the changes to unfair contract terms legislation as provided for under the Competition and Consumer Act 2010 (Cth) (“CCA”) and the Australian Securities and Investment Commission Act 2001 (Cth) were put in force by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (“the Amendments”).  

The Amendments will apply to standard form consumer and small business contracts which are: 

1. entered into from 10 November 2023: or 
2. renewed or varied from 10 November 2023.  

The Amendments are extensive, but the key points can be summarised as follows:

Key points to be across for businesses and consumers 

The UCT regime and its applicability

The Australian Consumer Law (“ACL”) contained in the CCA, and, the ASIC Act contain provisions which are referred to as the “unfair contract terms regime” (“the UCT regime”). The ACL prohibits businesses from using unfair contract terms in standard form consumer contracts and small business contracts. 

Standard form contracts

“Standard form contracts” are not defined within the ACL. Essentially, standard form contracts are those contracts used often without extensive modification to their terms. Examples of standard form contracts are gym memberships and gas supply terms. Consumer contracts are presumed to be standard form contracts unless the contrary is proven. 

Modification of assessing whether a standard form contract, is a standard form contract

The Amendments now require that the Court must not consider whether a party had the chance to negotiate minor terms of the contract, whether it could consider from a range of options, or whether a party to another contract had the chance to negotiate its terms.

Expanded definition of “small business contract”

The Amendments altered the definition of a “small business contract” under the ACL by broadening the scope of what a small business contract is. A “small business contract” under the Amendments, is a contract that satisfies all of the following:

1. that the contract relates to the supply of goods or services, or a sale of interest in land; 
2. at least one party satisfies one or both of the following criteria;
   • the party creates the contract in the course of carrying on business, and at the time the party employees less than 100 people; and or
   • the party, for the last income year that ended before or at the time the contract was made had a turnover of less than $10,000,000.

Prior to the Amendments, a contract could be a “small business contract”, if the contracting party had fewer than 20 employees. Thus, the Amendments have broadened the scope of what businesses can be captured under the UCT regime. This will increase the amount of businesses which are protected by the UCT regime.  

 No changes to test of “unfairness”

The Amendments did not amend the test for ascertaining what an unfair contract term is. A consumer contract or a small business contract is unfair, pursuant to s 24(1) of the ACL, if:

(a)  it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and 

(b)  it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and 

(c)  it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. 

Changes to unfair contract terms in the introduction of ‘illegal’ unfair contract terms and pecuniary penalties

Prior to 9 November 2023, Courts only rendered unfair contract terms void. The Amendments now mean that unfair contract terms are prohibited, and each unfair contract term is considered a separate contravention. Where a party uses unfair contract terms, pecuniary penalties can be severe. 

In other words, the Amendments have now made unfair contract terms illegal, rather than merely providing provision for the voiding of the impugned contract terms.   

Court powers

The Amendments also give the Court more powers to make orders such as injunctions to refrain a person from making future contracts which rely on the UCT regime, as well as orders that the Court sees fit to redress loss caused by an unfair contract term. 

Increased penalties for breaches of the CCA

Whilst not limited to the UCT regime, the Amendments also increased the maximum penalties for breaches of the CCA. For body corporates, the maximum penalty is $50million, 3x the value of the benefit obtained and attributable to the breach if determined and if the value cannot be determined, then 30% of adjusted turnover during the breach period.

For individuals, the maximum penalty is 2.5million 

What are some terms that could be captured by the new UCT regime?

Whilst fact specific, any of the following could (without limitation) be captured by the UCT regime and the Amendments:

1. automatic renewal with no notice; 
2. unilateral termination rights; 
3. unilateral variation rights; 
4. one sided indemnities; and 
5. unfair payment terms.