Competition and consumer law update: unfair contract terms to attract penalties under new increased penalty regime

New legislation is set to significantly increase the maximum penalties under Australia’s competition and consumer laws, and also make unfair contract terms liable to financial penalties where at present no penalties can be imposed.

On 27 October 2022, the Federal Government passed the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Act). The Act not only increases the maximum penalties faceable under the Competition and Consumer Law Act 2010 (Cth) (CCA), including under the Australian Consumer Law, but also renders unfair contract terms liable to the new maximum penalties.

Increased maximum penalties

The current maximum pecuniary penalty that companies and individuals face for breaching the prescribed provisions of the CCA (including the Australian Consumer Law) is only one-fifth of the new maximum penalties.

Under the new laws, for engaging in cartel conduct and other anti-competitive behaviour as well as for breaches of consumer laws, the maximum penalties for individuals will increase from $500,000 to $2.5 million, with companies being liable for the greater of:

• $50 million (previously $10 million)
• 3 times the value of the benefit obtained, if determinable
• If not determinable, 30% of adjusted turnover during the breach turnover period (previously 10% of body corporate’s annual turnover in the 12 months prior to contravention). This not only increases the percentage by a factor of three but also broadens the base upon which they are calculated.

The increased penalties will come into force one day after the Act receives Royal Assent, which is likely to be sooner rather than later.

Expansion of the unfair contract term regime

The Act will also introduce new laws to significantly change the unfair contract terms regime under the Australian Consumer Law.

Firstly, the Act will expand the scope of small business contracts to which the unfair contract term laws apply. The definition of ‘small business’ will be any entity which employs fewer than 100 persons or which has an annual turnover of up to $10 million. This is a substantial increase from the current 20 persons threshold. An entity will be a small business entity if either of these tests are met.

Furthermore, ‘small business contracts’ will no longer be restricted to contracts with upfront prices that do not exceed $300,000 or, if the term exceeds 12 months, $1,000,000. This threshold will be removed in its entirety, and any standard form contract for goods or services with a small business will be a small business contract.

Secondly, among other remedies, courts will be empowered to impose a penalty for each instance a person applies or relies on an unfair contract term (or even purports to do so), or otherwise proposes an unfair contract term. This is a significant departure from the current law, which only permits courts to void unfair contract terms or prevent their further use.

These new penalties for unfair contract terms will take effect 12 months after the Act receives Royal Assent. As penalties will be able to be imposed on each unfair contract term (rather than the contract as a whole), as well as each time it is made or enforced, it is essential that businesses review their standard form and small business contracts within the next 12 months.

Please contact David Grace or Adelaide Hayes if you wish to discuss any of the matters contained in this article or arrange for competition and consumer law training for your organisation.