Critical reforms to unfair contract terms laws in Australia now in force!

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) is now in effect, transforming the landscape of unfair contract terms under the Australian Consumer Law.

As of 9 November 2023, new penalties for unfair contract terms are now in force. We previously reported on these changes in late 2022 and urged businesses to promptly review and update their standard form and small business contracts to align with the amended legal framework.

The changes allow courts to impose significant penalties on businesses and individuals who make standard form contracts with unfair terms. This applies irrespective of whether the unfair term is ultimately relied upon, provided it was proposed by the business or individual in question. Previously, a court could only declare specific terms of a contract unfair and therefore void. Proactive compliance is essential, as an individual or business violating the new provisions may incur liability for each proposed unfair term.

Key changes to the unfair contracts regime

Expanded ‘small business’ definition

The Act widens the ‘small business’ definition, now covering entities employing fewer than 100 persons or with an annual turnover of up to $10 million.

Threshold elimination

‘Small business contracts’ are no longer bound by monetary thresholds, opening the scope to any standard form contract for goods or services with a small business.

Penalties for each instance

Courts now have the authority to impose significant penalties for every inclusion, reliance, or proposal of an unfair contract term This is a departure from the previous law, which only permitted courts to void unfair contract terms or prevent their further use.

Penalties

Businesses should be aware that the maximum financial penalties under the new unfair contract terms laws are the greatest of:

• $50 million
• three times the value of the ‘reasonably attributable’ benefit obtained from the conduct (if the court can determine this)
• if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

For individuals, the maximum penalty is $2.5 million.

What should businesses do?

Businesses are strongly advised to seek advice and promptly reassess and revise their standard form and small business contracts to align with the revised legal framework. The changes apply to:

• standard form contracts made or renewed on or after 9 November 2023
• a term of a contract that is varied or added on or after 9 November 2023.

It is crucial to adopt a proactive approach to compliance, as penalties may be applied for each term and on each occasion of application or enforcement.