Unfair Contract Terms - New, Higher Penalties in 2023

Federal parliament has passed the amended Australian Consumer Law Unfair Contract Terms (“UCT”) legislation to increase penalties and prohibit certain terms.

The current regime was enacted to address the significant imbalance in the rights of each party to certain contracts, such as online, repeat transactions where renewals are automatic unless the consumer specifically opts out. Courts consider equality of bargaining power, and whether the terms are presented on a “take it or leave it” basis.  There is a statutory presumption that those terms are unfair and the burden of proving otherwise rests with the party wanting to rely on it.

From November 2023, the UCT regime will be extended to apply to a much broader range of businesses, capturing contracts previously not caught by the UCT regime.

The reforms will apply to standard form small business contracts where at least one party either:

• Employs fewer than 100 people (replacing the current threshold of 20); or
• Has annual turnover during the previous financial year of less than $10 million.

The reforms remove the current threshold of the upfront price payable under the contracts for the sale of goods or services which are regulated by the Consumer Law.  The threshold is currently less than $300,000 or $1 million for contracts for a duration over 12 months.

There will be a broader range of “small businesses” for the purposes of the UCT regime and standard form contracts used with those parties will be subject to the regime.  For both consumer and small business contracts the reforms add clarity as to what constitutes a “standard form contract”.

A contract may still be a standard form contract even if there is an opportunity to negotiate changes to the terms of the contract, or select from a range of options determined by the other party.

With a broadened scope and penalty provisions coming into play in November 2023, businesses should refresh their contracts to ensure compliance with the regime.

The following steps may be considered in advance:

1. Consider whether your standard form contract will be captured under the new changes.
2. Review your current standard form contracts to ensure they do not contain any unfair contract terms and remove them where required to reduce risk.
3. Communicate the new regime across your organisation, including considering compliance training to ensure the whole of your business understands its obligations.

Contact our Building and Construction team if you have any questions.