Substantial changes have been made to the Australian Consumer Law1 to ensure standard form contracts contain fair terms that level the playing field for small to medium businesses and significantly increase the number of small business contracts that are captured under the unfair contract term protections.
ACCC Deputy Chair Mick Keogh states, “The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms.”2
Penalties for unfair contract terms
The motivation Mr. Keogh refers to is the significant penalties to be imposed upon those seeking to implement unfair contract terms introduced on 9 November 2023.
Maximum fine for corporations:
- $50 Million.
- 3 times the value of the benefit received from the unfair term.
- If the value cannot be determined, 30% of the adjusted turnover during the breach period.
Maximum fine for an individual:
- $2.5 Million.
Previously, when a standard form contract was found to have an unfair contract term, the term was void and unenforceable without penalty.
Changes for small business contracts
The regime of protection from unfair contract terms applies to consumer contracts or small business contracts if they are standard form contracts. A standard form contract generally refers to terms that are presented to a customer without an effective opportunity to negotiate them.
A consumer contract refers to any contract for a supply of goods, services or an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
Significant changes have been made to the scope of a small business contract, with the aim of substantially increasing the number of small business contracts captured under the unfair contract term protections. Under the new changes, there will be a small business contract where either party has fewer than 100 employees and has a turnover of less than $10,000,000, which is a significant increase to these thresholds.
Next Steps
It is advisable to review your standard form contracts, as recommended by the ACCC (Businesses urged to remove unfair contract terms ahead of law changes |ACCC).
The financial consequences of just having an unfair contract term in a standard form contract, even if it is not sought to be imposed, are significant, and all businesses need to ensure they are fully prepared to avoid such risks.
For more information, you are welcome to watch a recording of a webinar on this topic at: https://www.dwfoxtucker.com.au/event/seminar-the-consequences-of-unfair-contract-terms
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1 Found in Schedule 2 of the Competition and Consumer Act 2010 (Cth).
2 Businesses urged to remove unfair contract terms ahead of law changes | ACCC.
