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:

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, if they haven’t already all relevant entities should act now to assess their standard form contracts to ensure that they comply with the UCT Laws.

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. 

[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.