Pay the Price: Unfair Contract Terms Face Justice

contract review

Small businesses and consumers alike often face lengthy contracts when purchasing goods or services – sometimes, with unfair terms hidden in the fine print. Under the current legislation the only recourse was to seek a court declaration that the term was unfair and void. However, from 10 November 2023 there are changes to the Australian Consumer Law[1] that will penalise businesses who utilise unfair contract terms. This means more justice for consumers and small businesses – but also the need for businesses to reassess contracts currently on foot.

What constitutes an ‘unfair contract term’ and a ‘standard form contract’ is discussed in our earlier articles available here and here.

What are the amendments?

There are five key changes to be aware of:

  1. It will be an offence to make, purport to rely, or actually rely on a standard form consumer or small business contract contains an unfair term. Each unfair term within a contract is a separate offence. These offences carry with them a pecuniary penalty – for individuals up to $2.5 million, and for companies up to (1) $50 million, (2) three times the value of the benefit, or (3) 30% of the turnover during the breach, whichever is greater.
  2. Previously the unfair contract terms regime only applied to standard form contracts with an upfront price payable of $300,000 or $1 million in the case of a contract with duration greater than 12 months. These monetary limitations will be removed, so the regime will apply to any standard form contract between a business and either another small business or a consumer.
  3. The definition of “small business” is also changing – expanding who is eligible to seek relief from an unfair contract term. Previously a small business was one with less than 20 employees, the limit will now be 100 employees.
  4. The definition of a “standard form contract” has been clarified. In future, a contract may still be regarded as “standard form” despite the existence of minor or insubstantial changes, or where parties can select from a range of pre-determined options in a contract. Repeated usage of the contract must also be considered by the court in determining whether it is “standard form”.
  5. Courts will continue to have the power to declare contract terms as unfair. However, courts will gain the power to make orders to prevent or reduce the damage caused by the unfair term, declare similar contracts not put before the court as unfair, and issue injunctions to stop the use of other contracts containing the unfair term.

There are other more minor changes, such as certain clearing houses being exempt from the legislation, and the clarification of the use of “non-party” in the law.

What is the impact of the amendments?

With November fast approaching, businesses should take a proactive approach to reviewing their standard form contracts to determine whether there are any terms that might be considered unfair and amend or remove those in order to reduce the risk of pecuniary penalties.

If you wish to seek advice regarding whether a contractual term is unfair and your options as a business or as an individual, please contact our Business and Commercial Team at 02 6274 0999.

[1] The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 was passed by both Houses of Parliament on 27 October 2022, and the provisions that relate to unfair contract terms will take effect on 10 November 2023.

First published on 07 August 2023.

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