Commercial Law

Australian Consumer Law – Important Changes

The Australian Consumer Law (‘ACL’) has now changed, meaning that businesses with standard contracts will soon be at risk of incurring significant financial penalties for each unfair contract term (UCT) within their standard form agreements.

What changes are being made to the ACL?

The definition of small business contracts  will be amended to apply to a business that has either:

1. fewer than 100 employees; or
2. an annual turnover of less than $10 million

 

The UCT law provides some guidance and lists examples of contract terms that may be unfair. The factors that a Court might take to be unfair include, but are not limited to, terms that permit or have the effect of permitting a party to unilaterally:

• vary the terms of the contract;
• avoid or limit performance of the contract;
• assign the contract to the detriment of another party without that other party’s consent;
• vary the upfront price payable under the contract without the right of another party to terminate the contract; and
• vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract.

 

What is a Standard Form Contract?

The ACL does not specifically define what is ‘standard form’. However, it does provide a framework of factors for courts to consider when determining whether a standard form contract exists. These factors include where:

• one party possesses the bargaining power;
• one party prepares the contract without a discussion between the parties;
• the other party must accept or reject terms on a ‘take it or leave it basis’; or
• the other party does not have an adequate opportunity to negotiate the terms of the contract.

 

You may be familiar with some recognisable examples of standard form contracts such as:

• mobile phone plans;
• airline sales terms and conditions;
• gym memberships;
• information technology licences; and
• online contracts where the party is required to tick an acceptance box to accept terms and conditions.

 

What Are the Key Changes?

1 (a). Current Law

A court may determine a contract contains a UCT and can thus declare the contract, or a part of the contract, void and unenforceable

1 (b). New Law

A person cannot propose, apply, rely or purport to apply or rely on an unfair contract term (UCT)

2 (a). Current Law

No equivalent law

2 (b). New Law

A court may impose a financial penalty where a contract contains a UCT or a person attempts to apply, rely on, or purport to apply or rely on a UCT. Where a contract has numerous UCTs, each unfair term in the contract may be considered a separate breach

3 (a). Current Law

The maximum penalty for a contravention of the CCA was:

For an individual:

• $500,000

For a body corporate, the greater of:

• $10 million;
• 3x the value of the benefit obtained; or
• where the value of the benefit cannot be determined, 10% of the annual turnover in the 12 months preceding the act or omission

 

3 (b). New Law

The maximum penalties for a contravention of the CCA or ACL have increased to:

For an individual:

• $2.5 million

For a body corporate, the greater of:

• $50 million;
• 3x the value of the benefit of the UCT (if it can be determined); or
• 30% of adjusted turnover during the breach turnover period (i.e. over the period the breach occurred, with a minimum of 12 months)

 

4 (a). Current Law

Once a court determines a term in a standard form contract to be unfair, either the whole contract or a specific part of the contract is automatically void.

4 (b). New Law

Courts may exercise more flexibility in their orders to prevent and reduce loss or damage concerning a UCT. The court can now make orders to prevent a party from using the same or substantially similar terms to those already deemed unfair in any future standard form or consumer contract.

5 (a). Current Law

Courts can make an injunction restraining a party from applying, relying on, or purporting to apply or rely on, a term of a contract that has been declared an unfair term.

5 (b). New Law

In addition to the current injunction powers, the court can make an injunction preventing a person from:

• entering into any future contract that contains a term that is the same or similar in effect to a declared unfair contract term; or
• applying, or relying on, a term in any existing contract that is the same or similar in effect to a term that has been declared unfair, whether or not that contract is before the court.

 

6 (a). Current Law

The small business threshold in the ACL was:

• fewer than 20 employees; and either:
• the upfront price payable under the contract is less than $300k; or
• $1,000,000 if the contract is longer than 12 months.

 

6 (b). New Law

The small business threshold under the ACL is expanded to include a business with:

• fewer than 100 employees; or
• an annual turnover of less than $10,000,000.

 

7 (a). Current Law

In determining whether a contract is a standard form contract, the court must consider several matters, including:

• whether one party had to reject or accept the terms of a contract in the form they were presented; and
• whether the other party had an effective opportunity to negotiate the terms of the contract.

 

7 (b). New Law

In addition to the current law, the Bill clarifies that a contract may be a standard form contract despite there being an opportunity for:

• a party to negotiate changes to contract terms that are minor or insubstantial in effect;
• a party to select a term from a range of options determined by another party; or
• a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

 

Key Takeaways

In summary, the Federal government has implemented several new legislative changes to deter unfair and anti-competitive conduct in the Australian market, which ultimately benefits consumers and small businesses. Effectively, quite a number of contractual terms that large businesses would utilise in standard term agreements are now considered unlawful.

Furthermore, the threshold for what falls under the umbrella of ‘small business’, and can receive protection from regulation, has expanded. Therefore, careful consideration of any contractual arrangements should be considered, so you can decide whether you  amend or remove UCTs from any current standard form or consumer contract. Moreover, the implication of penalties has heightened the consequences of having (and relying on) unfair contract terms. Additionally, businesses must be vigilant to ensure their contractual arrangements are fair and balanced.

The first thing you should do is check the existing terms and conditions of your business’ contracts and seek professional advice regarding whether changes are needed, especially if they are ‘standard terms’.

The changes do not take effect until 12 months after the royal assent is given to the Bill amending the ACL. The royal assent was given on 9 November 2022, so the changes will come into effect on 9 November 2023.

In this interim period, it is critical that businesses ensure that their contracts do not contain terms that would infringe on the unfair contract terms regime in the ACL.

It is important that you review your agreements to ensure that its terms are compliant with the legislation. If you require assistance with the review of your contracts, or to discuss these incoming changes, please do not hesitate to get in touch with the team at Ezra Legal on (08) 8231 6100 or email reception@ezralegal.com.au

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Ash Ibrahim

Solicitor

Ezra Legal