Changes to unfair contract terms – is your business ready?

By CCIWA Editor 

Upcoming changes to the unfair contract terms (UCT) regime will affect more businesses and impose higher penalties for non-compliance. CCIWA's Commercial Law Team explains.

Changes to the unfair contract terms (UCT) regimeFrom 10 November 2023, the Australian competition and consumer laws will be revised to strengthen the unfair contract terms (UCT) regime. The changes expand UCT coverage to previously unaffected businesses and impose significantly higher penalties for non-compliance.

The UCT regime applies to businesses that use a standard form ‘take it or leave it’ contract or standard terms and conditions with their customers and suppliers. Businesses should take immediate action to review and assess their contracts and terms and conditions to determine whether they are now captured under the UCT regime and ensure they are legally compliant.

It has been 10 months since these changes were first announced and it is expected the Australian Competition and Consumer Commission (ACCC) will increase its scrutiny of standard form contracts.

Now is the time to consider if your business will be affected by new laws. This includes reviewing and amending your standard form contracts to ensure you are compliant. It is also important to consider new contract risks and mitigation strategies associated with the UCT regime.

What is a ‘standard form’ contract?

A standard form contract is a standard agreement pre-written by one party. Typically, it is a set of standard terms and conditions, which usually cannot be negotiated or changed by the other party.

Standard form contracts can be found in industries that have high-value contracts with small businesses, building and construction contracts, manufacturing contracts, equipment hire contracts, services contracts, telecommunication contracts, online terms and conditions and many more.

The change in law provides clarity around whether a contract is a ‘standard form’ even if:

  1. there has been the opportunity for the other party to the contract to negotiate minor changes to the terms,
  2. the party to the contract had a choice to select a term from a range of options given by the party that created the contract, or
  3. if the standard form contract has been negotiated previously by third parties, it may still be considered a standard form contract.

What does an unfair term look like?

Whether a term of a standard form contract is ‘unfair’ will be assessed on a case-by-case basis. There is no set list of what terms would be considered ‘unfair’. However, the law provides a test that will help determine whether the term is ‘unfair’ if the term:

  1. would cause significant imbalance in the parties’ rights and obligations arising under the contract, or
  2. it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by them, and
  3. would cause detriment to a party if it were to be applied or relied on.

Some examples of unfair terms are clauses that allow one party to either limit their liability or vary the contract without allowing the other party to do the same, or automatic renewal of the contract without providing notice to the other party.

Who does the regime apply to?

The definition of ‘small business’ will be expanded to include businesses that:

  • employ fewer than 100 employees, or
  • have an annual turnover of less than $10 million for the last income year.

The changes will also see that the UCT regime will apply to all small business contracts, regardless of contract value. The changes will apply to:

  1. standard form contracts that are made or renewed on or after 10 November 2023, or
  2. any term of a contract that is varied or added on or after 10 November 2023.
Case example

XYZ Co business has a contract that they provide to all customers. XYZ Co provides their contract to their new customer, ABC Co business.

 A term in the contract provides that the contract is automatically renewed without ABC Co’s consent and XYZ Co can increase their fees without ABC Co’s consent or providing notice to ABC Co.

 XYZ Co acknowledges they will now be captured under the new changes to the UCT regime as they employ less than 100 employees and provide the same contract to all their new customers. XYZ Co acknowledges that it is likely that the terms in their standard form contract could be considered unfair under Australian Consumer Law (ACL) and take steps to review and amend their contracts and allow for meaningful negotiation between the parties.

Increased maximum penalties

Maximum penalties will be significantly increased and may be imposed where businesses include or rely on an unfair contract term in a standard form contract. Under the new UCT regime, the maximum penalty is:

  • $2.5 million for an individual, or
  • for a corporation, the greater of $50 million, or
    • if the court can determine the value of the benefit, then three times the value of that benefit, or
    • where the value cannot be determined, 30% of the corporation’s adjusted turnover during the breach period.

In addition to penalties, a court can make orders for the whole contract, including to void, vary or refuse to enforce the contract, or to make orders to prevent the same or similar term from being included in future standard form contracts.

Next steps

Complete our short quiz to see if your business will be affected by the new UCT regime and if you are compliant with the new laws.

Our CCIWA Commercial Law Team can assist you with reviewing your contracts, identifying any potentially unfair terms, and provide some risk mitigation strategies. Please contact our CCIWA Commercial Law Team at [email protected] or call (08) 9365 7560.

*Disclaimer: This article has been prepared as guidance only. It is not legal advice and should not be relied upon as such.

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