UPDATE
We provide below an update to the applicability of the Unfair Contract terms national regime, further to our Mondaq Article issued on 23 May 2023 below:
New changes to and penalties for Unfair Contract Terms under the Australian Consumer Law (ACL)
Monetary Penalties
Following the introduction of monetary penalties, and the inclusion of small business contracts, effective from 9 November 2023, the Courts have made several interesting findings with respect to the unfair contract terms regime as governed by the ACL and the ASIC Act.
Recap
Australian Consumer Law
The national unfair contract terms regime came into effect in 2010, pursuant to the Australian Consumer Law Schedule 2 of the Competition and Consumer Act 2010 (Cth), which applied to:
- A Standard form contracts (pre prepared contracts with little room for negotiation); and
- A Consumer Contract (where one party is an individual for supply of goods / services for personal domestic household use / or sale / interest in land; or
- A Small Business Contract for supply of goods or services or sale / interest in land, where at least one party is a small business ( having less than 100 employees – including part time / casual staff) and / or annual turnover of less than $10 million)
There is no monetary limit on Consumer Contracts or Small Business Contracts.
ASIC Act
The Unfair Contract terms national regime applies to:
- financial products and services (e.g. business loans) with a contract value up to $5 million; and
- insurance contracts (not including health / motor vehicle third party insurance / workers compensation).
Civil penalties came into effect from 9 November 2023 for all new and existing contracts that are renewed from 9 November 2023.
Monetary Penalties
Under the ACL: individuals may be fined up to $2.5 million per contravention. For corporations, the maximum penalty per contravention will be the greater of: $50 million; three times the value of the benefit obtained (if that can be determined).
Under the ASIC Act: individuals may be fined up to the greater of $1.375 million per contravention or three times the benefit obtained from the conduct. For corporations, the maximum penalty per contravention will be the greater of $13.75 million; three times the value of the benefit obtained (if that can be determined), or 10% of annual turnover currently capped at $555 million.
Who does it apply to?
The reach of the Unfair Contract terms extends to most industries.
Butchers, Bakers and Candle-stick makers.
What is an unfair contract term
Section 24 of the ACL and section 12BG of the ASIC Act Unfair Term means the term:
- would cause significant imbalance of the parties rights and obligations; and
- is not reasonably necessary to protect the legitimate interests of the party; and
- would cause detriment (financial, delay, distress or otherwise – not actual loss) to a party.
Must prove all three elements above for a term to be unfair.
To determine if the term is Unfair, the Court may take account of the extent to which the term:
- is transparent (plain language / clear / readily available access i.e not part of another document / contract);
- relates to the contract as a whole (some clauses may be for benefit of customer – automatic rollover for essential services).
Rebuttable Presumption
It will be presumed that the contract is a standard form contract, and the term is not reasonably necessary, with the party seeking to rely on that contract and unfair term required to prove otherwise.
Terms that are not covered by the Unfair Contract Regime
- terms that define the main subject of the contract – ie the car being insured under a comprehensive insurance policy.
- terms that set the upfront price payable, which includes interest rate and establishment fees, however loan default fees would be captured as subject to unfair terms review.
- terms that are required by law – Consumer Guarantees under the ACL – guarantees to ownership / title / warranties – supplier – manufacturer / repairs / fit for purpose / due care and skill / reasonable time for supply.
Relevant Case Law
Karprick v Carnival pls [2023] HCA 39 – Ruby Princess class action
- US Group of passengers issued Class Action Claim in Australia that contracted Covid on the Carnival Ruby Princess in Australia in March 2020.
- Carnival sought to dismiss the Class Action Claim on basis that the US Group entered into US based Carnival Contract which contained a class action waiver clause / exclusive jurisdiction clause for claims to only be issued in California, United States.
- High Court found the ACL applied to the Carnival Contract, as:
- even if an entity (Carnival) based outside Australia, if it engages in trade or commerce in Australia, its non Australian Standard form contracts will be subject to the ACL and the Unfair Contract Terms Regime;
- the class action waiver clause, was an unfair term / not transparent / not enforceable / not necessary to protect Carnival’s interest, as made it uneconomical for passengers to pursue individual claims based on loss incurred ie price of the cruise ticket.
ASIC v Auto & General Insurance Company Limited [2024] FCA 272
- ASIC unsuccessfully challenged an insurer Notification Obligation Clause in standard home and content insurance policies, requiring the insured to disclose to the insurer if anything changes about the insured’s home or contents.
- Court dismissed ASIC’s proceeding on 22 March 2024 finding that:
- the insurer obligations of disclosure was consistent with the obligations under the Insurance Contracts Act 1984 (Cth), to act in utmost good faith;
- there was not a significant imbalance in the rights / obligations between the parties;
- the terms were transparent;
- the notification clause protected the insurer’s legitimate interests.
- ASIC has appealed to the Full Federal Court.
Practical Steps
The Unfair Contract Terms regime will interact with the existing consumer guarantees / warranties under the ACL and ASIC Act, which includes unconscionable conduct, misleading and deceptive conduct, false / misleading misrepresentation, unfair practices / pricing.
We will await the outcome with interest further claims being brought before the Courts, by the increased vigilance of ASIC, and the Australian Competition and Consumer Commission (ACCC), through the ACL regime, with respect to unfair contract terms compliance.
Businesses should annually review their contract terms and conditions, to ensure that high risk unfair terms are considered / amended / reviewed / removed:
- Entire Agreement clauses – that specifically exclude implied terms / pre-contract representations being relied upon;
- Terms that refer to other agreements / terms not provided
- Terms that are difficult to understand / not transparent – use clear and simple language;
- Limitations / exclusions of liability / blanket indemnities for one party;
- Automatic rollover of contract terms;
- Unilateral rights to vary terms without reasonable cause / for convenience / without notice.
- Excessive penalty / interest default rates / exit terms / unjust fees – penalty not compensation.
Conclusion
Our team of Commercial lawyers can assist you in reviewing your contracts and offer personalised advice on any potential implications for you as an individual or a business.
Call us on 9635 7966 for a friendly discussion or click here to get in touch.
