In 2016 and 2023, Australia witnessed significant changes in its legal landscape with key amendments concerning unfair contract terms. These amendments aim to bolster consumer protection and promote fair business practices. Unfair contract terms have long been a concern, particularly in transactions between businesses and consumers. The updated legislation reflects a commitment to fostering fairness, transparency, and equity in contractual relationships.
Legislative Development
The legal landscape surrounding unfair contract terms underwent a substantial transformation with the introduction of the Australian Consumer Law 2010 (Cth) (ACL) in 2010. The ACL, which is part of the Competition and Consumer Act 2010 (Cth) (CCA), is designed to protect consumers and ensure fair competition in the marketplace. One of its key provisions addresses unfair terms in standard-form contracts.
Unfair Contract Terms
Standard-form contracts are pre-prepared agreements on a ‘take it or leave it’ basis where the terms are set by one party, leaving the other party with little or no opportunity to negotiate. A party using a standard-form contract may have used the same or similar contract before.
Recognising the inherent power imbalance in such agreements, the ACL empowers the Australian Competition and Consumer Commission (ACCC) to take action against unfair contract terms.
A term will be unfair if it causes a significant imbalance in the parties’ rights and obligations (for example, a term gives a party the ability to vary the agreement at any time without reasonable cause unilaterally) and is not reasonably necessary to protect the legitimate interests of the party advantaged by the term (for example a term that places no limitations whatsoever on one party’s ability to vary the rules) and causes detriment to a small business if it were applied or relied upon (for example, a term allows one party pass on its unlimited costs to the other party).
Legislative Amendment in 2016
In 2016, significant amendments were made to the unfair contract terms regime to broaden the scope of application (extending beyond consumer contracts to include small business contracts) and increase penalties, which serve as a deterrent, encouraging businesses to reassess and revise their contracts to comply with the new standards.
The rationale behind this expansion was to shield small businesses from unfair contractual practices, acknowledging that they often face similar challenges as consumers when dealing with larger enterprises. The amendment applies to standard-form contracts entered into or renewed on or after 12 November 2016.
Section 23 of the ACL prohibits unfair contract terms in standard-form contracts for the supply of goods and services, including selling interest in land where at least one of the parties is a small business (namely, has less than 20 employees, including casual employees working on a systematic basis) and the disclosed upfront price payable (includes any payments for the product or service being supplied under the contract) is no more than $300,000.00 or $1 million if the contract is for more than 12 months.
Legislative Amendment in 2023
In 2023, significant amendments were made to further increase the scope of the unfair contract terms regime and applicable penalties. The amendments of the CCA, ACL and Australian Securities and Investments Commission Act 2001 (Cth) (ASICA) apply to standard-form contracts entered into or renewed, including a term of a contract that is varied or added on or after 9 November 2023.
It applies to all businesses supplying goods or services, selling or leasing land, or providing financial services or products to a consumer or a small business (where at least one party has less than 100 full-time equivalent employees or a turnover of less than $ 10 million for the last income year) and the disclosed upfront price payable is no more than $5 million under the ASICA.
The 2023 legislative amendments increased the maximum penalty (for example, $50 million for companies) for the breach of the laws.
Review of Contract Terms
In light of the newest legislative implementation, businesses must be vigilant to ensure their contracts are fair. If you think a term in your contract is unfair or need to review your standard-form contracts, retain The IP House Lawyers. Our experienced lawyers will advise you on the new amendments and provide reviewing and drafting services to ensure your contracts are in compliance with the unfair contract terms regime.
For any further information or queries on the above content, please contact us.
The Author
Jean Kallmyr | Lawyer, The IP House Lawyers | t: 0435 799 831 | e: admin@theiphouse.com.au
Key Contact
Claire Darby | Managing Director/Lawyer, The IP House Lawyers | t: 0412 998 951 | e: claire@theiphouse.com.au
Disclaimer
The information and contents of this publication do not constitute any legal or financial advice. This publication is intended only for reference purposes for The IP House Lawyers’ clients and prospective clients.
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