On 10 November 2023, the unfair contracts regime in place under the Australian Consumer Law (ACL) will expand significantly with the coming into effect of the Treasury Amendment (More Competition, Better Prices) Act 2022 (Cth) (UCT Laws).

What contracts are covered by the UCT Laws?

The UCT Laws will apply to any standard form contract entered into with a person or business that has:

  • fewer than 100 employees (up from 20 employees)[1]; or
  • a yearly turnover of less than $10 million.

What is a ‘Standard Form Contract’?

What constitutes a standard form contract is unclear in the ACL. However, the starting point under the ACL is that if a party to a proceeding alleges that a contract is a standard form contract, the author of the contract bears the onus of proving otherwise having regard to:

  • the level of bargaining power vested in the respective parties;
  • whether the contract was prepared by the advantaged party prior to the relevant transaction;
  • whether the contract was presented on a ‘take it or leave it’ basis;
  • whether the disadvantaged party was given an effective opportunity to negotiate the terms of the contract; and
  • whether the contract takes into account the specific characteristics of the other party and/or the particular transaction.

Having said this:

  • it is possible for contracts that include some degree of customisation to be characterised as ‘standard form contracts’ if the customisation is minor; and
  • the UCT Laws provide that it is open to a court to designate a contract to be a ‘standard form contract’ even though the counterparty has been given an opportunity to:
    • negotiate minor or inconsequential terms; or
    • select from a range of alternatives.

What is an ‘unfair contract term’?

Under the UCT Laws, a term is ‘unfair’ if, in the context of the contract as a whole, it:

  • creates a significant imbalance in the parties’ respective rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the advantaged party; and
  • causes detriment to the other party if it is applied or relied upon.

Examples of terms which could therefore constitute ‘unfair contract terms’ for the purposes of the UCT Laws[2] include terms that:

  • unilateral variation - permit one party (but not the other) to unilaterally vary the terms of the contract;
  • automatic renewal – provide that the term of the contract will automatically renew unless the other party cancels it prior to a specified date;
  • extraneous document – incorporate documents into the contract that the other party has not been given an opportunity to review;
  • limitation of liability - disproportionately limit one party’s (but not the other’s) liability under or arising out of the contract;
  • indemnities – require one party (but not the other) to indemnify the other against performance or breach or otherwise assume greater liability than it would otherwise have at law;
  • time bar – include very short periods for making claims before they are time barred;
  • termination rights – permit only one party to terminate the contract or afford one party a right to do so for convenience without compensating the other; or
  • payment terms – include unreasonably long payment terms.

Consequences of a term being held to be ‘unfair’

The consequences that can flow from a failure to comply with the UCT Laws are broad ranging, with the legislation empowering courts to:
  • declare that part or all of a standard form contract is void;
  • award damages to the disadvantaged counterparty;
  • vary or refuse to enforce part or all of the unfair contract;
  • impose significant penalties on the advantaged party (a maximum of the greater of $50 million, 3 times the value of the benefit obtained by the advantaged party or 30% of its turnover during the period of the breach); and/or
  • upon application by the Australian Competition and Consumer Commission, injunct the advantaged party from:
    • incorporating a similar term into a standard form contract; and/or
    • relying on a similar term in an existing standard form contract.

It is also the case that a separate offence will be committed in respect of each ‘unfair’ term such that a single contract may give rise to multiple breaches.

Next steps

Whether a contract term is ‘unfair’ for the purposes of the UCT Laws is a matter for the courts to assess on a case-by-case basis.  Nevertheless, all relevant entities should act now to assess their standard form contracts to ensure that they comply with the UCT Laws prior to 10 November 2023.

Further information / assistance regarding the issues raised in this article is available from the authors, Joel Sturgeon, Partner and Matthew Duncan, Lawyer or your usual contact at Moray & Agnew. 

 

[1]  See the decision of the Federal Court of Australia in Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 298.

[2]  Casual employees are not counted unless they are employed on a regular and systematic basis and part-time employees are counted on a pro rata basis.

 

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive nor does it constitute legal advice, and has been prepared based on applicable legislation at the date of publication. You should seek legal advice on specific circumstances before taking any action.

Subscribe to our Publications

 
 

Other Recent Insights & Events