Reform to Unfair Contract Terms – What’s New?

Reform to Unfair Contract Terms – What’s New?

Commencing on 9 November 2023, significant reforms were made to the Australian Consumer Law (“ACL”) concerning unfair contract terms (“UCT”) within standard form contracts. These changes will attract substantial penalties under the Competition and Consumer Act 2010, as well as the ASIC Act 2001 for both businesses and individuals. It is therefore vital that you are made aware of the reforms to the ACL and how they may affect you.

In 2010, a term in a standard form contract was deemed to be unfair if it:

• caused a significant imbalance in the parties’ rights and obligations;
• was not reasonably necessary to protect the legitimate interests of the party who would be advantaged by such a term; and
• would cause detriment to a party if the term were to be applied or relied on.

The unfair term laws have been altered and the scope of what is considered to be an unfair term has increased through time as a result of reforms to the ACL.

What are the new UCT reforms?

Ban on UCT’s in standard form contracts

Previously, courts could only declare specific terms of a contract unfair and therefore void – however were not given the power to impose penalties on businesses that included unfair terms in their standard from contracts.

The new reforms propose stricter provisions, allowing courts to impose substantial penalties on businesses and individuals that include UCT’s within their standard form contracts.

These changes apply to:

1. standard form contracts made or renewed on or after 9 November 2023; and
2. terms of a contract which are varied or inserted on or after 9 November 2023.

For Businesses

The maximum financial penalties for businesses under the new UCT laws are the greater of:

• $50 million;
• 3 times the value of the “reasonable attributable” benefit obtained from the conduct, if the court can determine this; or
• If a court cannot determine the benefit, 30% of adjusted turnover during the breach period.

For Individuals

• A maximum penalty of $2.5 million for UCT’s.

Additional changes to the UCT Laws: expansion of class of small businesses

In addition to these stringent financial changes, protection for small businesses will now cover:

• Businesses with 100 or fewer employees
• Businesses that make less than $10 million in annual turnover

Implications of the UCT reforms

The new reforms require that businesses and individuals take strict attention to the terms placed within contracts that they may seek a customer to enter, and/or enter themselves. The financial liabilities of non-compliance with the ACL are significant.

The ACCC Deputy Chair Mick Keogh has noted the importance of this reform, stating that it should “motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms”.

Businesses should ensure transparency and clarity in their contractual terms with other parties to ensure that their obligations are met under the ACL and to ensure such financial penalties are not incurred.

For more information or to seek legal advice on how the new reforms may impact you as an individual or a business (including a review of your terms and conditions), please contact Matthews Folbigg Lawyers.

If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:

Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au

Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au

Chairman

Principal