As of 9 November 2023, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) will come into effect, making changes to various laws relating to competition and consumer law in Australia. One of the laws that will be amended is Schedule 2 of the Competition and Consumer Act 2010 (Cth), better known as the Australian Consumer Law (ACL). These changes aim to reinforce provisions in the ACL relating to unfair terms imbedded in contracts (the Unfair Contract Terms Amendment).
All contracts that are either created or renewed, or any contract terms that are varied, on or after the commencement date will be caught by the amendments.
Do these amendments affect agreements that currently exist? In some cases yes.
Here’s what you need to know when the Unfair Contract Terms Amendment takes effect on 9 November 2023.
- The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 will come into force on 9 November 2023, bringing amendments to provisions of the Australian Consumer Law in relation to unfair contract terms.
- The Unfair Contract Terms Amendment will introduce new prohibitions towards small businesses and will broaden the application of the prohibition of unfair contract terms onto other forms of contracts.
- The amendments also affect penalties provisions. The penalties provisions embedded in the ACL will be brought in line with the Australian Securities and Investments Commission Act 2001 (Cth) and will be applied in “the most egregious instances of noncompliance with the unfair contract terms provisions”.
- Under the Unfair Contract Terms Amendment, the remedies provisions will be broadened to allow the Australian Competition and Consumer Commission (ACCC) and ASIC to commence legal action against entities who either continually or repeatedly breach unfair contract terms.
- Australian small businesses should be aware of the types of contracts which may contain Unfair Contract Terms, and should be vigilant in ensuring that these Unfair Contract Terms are not included in any contractual agreement under its scope of business operations.
What is an Unfair Contract Term?
A term can be considered an Unfair Contract Term if the term is included in a standard-form contract and satisfies all of the following:
- The term attempts to cause a significant imbalance in the rights and obligations to the parties under a contract;
For example, Party A and Party B are bound to a contract and the contract contains a term that allows Party A to vary the terms of the contract while it is in force, but Party B does not have the same right to vary the terms of the contract. Here, Party A has a significantly stronger right under the contract than Party B which creates a significant imbalance between the rights of the parties under the contract.
- The term is not reasonably necessary to protect the legitimate interests of the party that is advantaged by the contract term;
Following the same example as above, if the term in a contract allows Party A to vary the terms of the contract but not Party B, this term is not reasonably necessary to protect the legitimate interests of Party A if the contract is already in force; and
- The term causes detriment or significant disadvantage to the other party of the contract;
In the same example, the enforcement of the term would cause Party B a significant disadvantage, and thus, overall, may have the potential to be an Unfair Contract Term.
To assess whether the term is deemed as an Unfair Contract Term, the Court will also consider whether:
The term lacks transparency, meaning that the term itself:
- was not clear, legible or expressed in a reasonably plain language;
- was not expressly stated and brought to the attention of the other party (for example, it was an implied term). Terms in a contract that have an implied meaning may result in an information imbalance between the parties if they are not brought to the attention of the other party; or
- was not readily available to the party that was affected by the term; and
- when compared to the contract as a whole, the term is objectively unfair.
Here are just some of the examples of what a typical Unfair Contract Term may include:
- a term that allows Party A to limit or void its performance of a term or the contract as a whole, but does not give Party B that same privilege;
- a term that allows Party A to terminate the contract, but not Party B;
- a term that penalises Party B, but does not penalise Party A;
- a term that allows Party A to vary a price under the contract but does not allow Party B to terminate that contract;
- a term that allows Party A to assign the contract to another party without the consent of Party B, and the effect of the assignment is to the detriment of Party B;
- a term that limits a party’s right to sue the other under the contract; or
- a term that limits a party’s vicarious liability for the actions of its agents.
If you are a party to a standard-form contract and it includes a term that may involve any of the above, the term may have the potential to be an Unfair Contract Term. If you are concerned that this may be the case, you should always seek legal advice on this issue.
Scope of the Unfair Contract Terms Amendment:
The Unfair Contract Terms Amendment will apply exclusively to the terms that are otherwise stated in standard-form contracts. These are contracts which are used by businesses and provide little to no opportunity for the offeree to negotiate the terms. In other words, the offeree can only either agree or reject the terms of the contract.
These types of contracts may include, to name a few, the contracts for:
- gym memberships;
- subscription services;
- telecommunication services; or
- internet service providers.
The Unfair Contract Terms Amendment will be applicable to all forms of standard-form contracts, including:
- business-to-business contracts and transactions (for example, the supply of goods or services to another business);
- consumer or non-negotiable contracts (for example, where the consumer cannot alter the terms and conditions of the agreement – they must either accept or reject the terms of the agreement); and
- clickwrap agreements (for example, where a purchaser or consumer clicks a button or checks a box to say “I agree” to the terms and conditions of the agreement).
These will take effect to the applicable contracts made or renewed either on or after 9 November 2023.
Schedule 2 of the Act will introduce two notable changes to Unfair Contract Terms in standard-form contracts applied to small businesses.
In Australia, a small business is typically a business that operates with less than 20 employees. However, the Act amends sections 139G(2)(aa) and 139G(2A)(a) of the Competition and Consumer Act 2010 (Cth) to substitute the definition of a “small business” for the purposes of a “small business contract” or a “standard-form contract” to be “persons who carry on a business and employ fewer than 100 persons”.
This means that the amended provisions under the Unfair Contract Terms Amendment will also apply to businesses with fewer than 100 employees.
If you are a director or a representative of a small business or a business with fewer than 100 employees and you deal with standard-form contracts, you should be aware of the following changes. As of 9 November 2023;
- parties will be prohibited from entering a consumer or small business standard-form contract that contains an Unfair Contract Term; and
parties will be prohibited from inserting, applying and relying on, or seeking to enforce, an Unfair Contract Term, or any term that has the effect of being an unfair term in a contract.
- Once the Unfair Contract Terms Amendment is in force, you will be in breach of the provisions if an Unfair Contract Term is contained in the standard-form contract, or if you attempt to enforce the Unfair Contract Term, or rely or purport to rely on the Unfair Contract Term.
These breaches are also accumulable. For example, if you are a consumer and you enter a standard-form contract agreement with a supplier which contains an Unfair Contract Term, and the supplier seeks to enforce that Unfair Contract Term, this may constitute not just one but two separate contraventions of the provisions against the supplier (one for the supplier providing a contract which contains an Unfair Contract Term, and another for enforcing or trying to enforce the Unfair Contract Term).
Schedule 1 of the Treasury Laws Amendment (Competition and Consumer Reforms No. 1) Bill 2022 (the Bill) will amend the maximum civil pecuniary penalties for contravening Unfair Contract Terms provisions to provide consistency with other provisions under the ACL.
The new maximum penalties for contravention of Unfair Contract Terms under the ACL will be the following:
For corporations, whichever penalty is the highest of:
- $50 million (previously from $10 million); or
- 3 times the benefit received from the unfair contract term; or
- 30% of the adjusted annual turnover of the corporation during the period of which the contravention took place.
- $2.5 million (previously from $500,000).
According to the Explanatory Memorandum, the maximum penalties will only apply to “the most egregious instances of noncompliance with the new unfair contract terms provisions”. However, penalties may be applicable to anyone who is a party to a standard-form contract, including individuals or businesses who breaches the Unfair Contract Term provisions.
If you are an alleged infringer of an Unfair Contract Term, you may be given the opportunity to respond to the allegations.
The remedies introduced in the Unfair Contract Terms Amendment will ensure that legal entities and parties to standard-form contracts will be more carefully monitored by the ACCC and ASIC. The amendments will also allow ACCC and ASIC to commence legal action against any infringers of the Unfair Contract Term provisions, and the amendments to Schedule 2 of the ACL will provide the opportunity to remedy anyone, including those who are not a party to the contract who was adversely affected by the application or reliance of the Unfair Contract Term.
The Unfair Contract Terms Amendment will introduce section 243A and section 243B of the ACL to apply additional remedies to those affected by the Unfair Contract Term.
Pending that the term is declared an Unfair Contract Term for the purpose of section 250, Section 243A of the ACL:
- will provide the opportunity for a business who is a party to the contract, or its regulator, who was adversely affected by a declared Unfair Contract Term, to seek orders from the Court to reduce or prevent the loss or damage that was caused to it by the effect of the declared Unfair Contract Term; and
- will give the Court authority to make orders to reduce the damage or loss caused to the affected party, including orders:
- to declare the whole or part of the contract (or collateral arrangement) void ab initio (meaning the term, or part of whole of the contract was void or invalid from the beginning);
- to vary the contract and declaring the contract or collateral arrangement
- to have no effect as so varied on or after the date of the order; or
- to refuse to enforce any or all terms of the contract (or collateral arrangement).
Pending that the term is declared an Unfair Contract Term for the purpose of section 250, Section 243B of the ACL:
- will allow regulators on behalf of affected parties and anyone who is adversely affected by an Unfair Contract Term to seek orders against the unfairly advantaged party, including:
- orders to prevent the Unfair Contract Term from being included in any future contracts;
- orders to prevent or minimize the damage or loss caused by the application or reliance of an Unfair Contract Term;
- orders for injunctive relief to prevent a respondent from making and entering a future standard-form contract which contains an Unfair Contract Term or a term that has the same or substantially similar effect, or from applying or relying on such a term;
- orders to declare the whole or part of an existing contract (or collateral agreement) to be void ab initio;
- orders to vary an existing contract (or collateral agreement) to have no effect as so varied on or after the date of the order; and
- orders to refuse to enforce any or all of the terms of the contract (or collateral agreement).
- regulators also gain the ability to seek orders to prevent loss or damage that is likely to be caused to any person or class of persons (including non-parties) in relation to a term in any existing contract to which the respondent is a party that is the same or substantially similar in effect to a term declared unfair, including a contract not subject to the proceedings before the court.
Who is excluded from the Unfair Contract Terms Amendment?
Certain contract types will be excluded from the enforcement of the Unfair Contract Terms Amendment, including:
- contracts with licensed financial markets, stock exchanges and managed investment schemes. For example, consumer contracts or agreements with the ASX;
- contracts concerning legacy guarantee renewable life insurance policies and certain life insurance policies entered prior to 5 April 2021, or otherwise covered by the Insurance Contracts Act 1984 (Cth)
- other certain contract types under the Payments Systems and Netting Act 1998 approved by the Reserve Bank of Australia.
There are certain contract terms that are required to be in contracts due to the operation of State and Federal law. For the purpose of the Unfair Contract Terms Amendment, these particular contract terms will not be considered Unfair Contract Terms.
What should you do?
- Standard-form contracts between consumers and small businesses will be the most impacted by the Unfair Contract Terms Amendment.
- If you are an owner of a small business or a business with less than 100 employees, the Unfair Contract Terms Amendment may apply to you.
- If you are a medium or large business and you deal in standard-form contracts, the Unfair Contract Terms may affect your existing contracts. Now is the time for you to carefully review your standard-form contracts to ensure that they do not contain any term that may have the potential to be an Unfair Contract Term.
- If you provide a standard-form contract that contains or may contain an Unfair Contract Term on or after 9 November 2023, or you amend an existing standard-form contract that contains an Unfair Contract Term, you may be caught under the Unfair Contract Terms provisions.
- If you enforce, apply or rely, or seek to enforce, apply or rely on an Unfair Contract Term in a standard-form contract, you will be caught by the Unfair Contract Terms provisions under the ACL. Therefore, you should tread carefully when dealing with any standard-form contract.
- If you are concerned about a standard-form contract that may contain an Unfair Contract Term, or you require assistance to prepare or review a standard-form contract, you should seek professional legal advice.
At EAGLEGATE Lawyers, we offer specialised services in reviewing supplier and consumer contracts and agreements and providing recommendations in how you can better protect your interests.
In light of the commencement of the Unfair Contract Terms Amendment on 9 November 2023, be sure to protect your interests in standard-form contracts by booking an appointment with EAGLEGATE Lawyers today.