Companies should be aware of changes to the Competition and Consumer Act 2010 (Cth) (CCA) coming into effect this year that will widen the scope of the existing unfair contract terms regime and introduce the first ever penalties for the use of unfair contract terms.

Background

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed both Houses of Parliament on 27 October 2022. The amending act, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Amendment), received royal assent on 9 November 2022 and amends the unfair contract terms provisions of the CCA and the Australian Securities and Investments Commission Act 2001 (Cth). The changes aim to strengthen the unfair contract terms regime to deter businesses from using and relying on unfair contract terms in their standard form contracts and improve competition.[1]

What is changing?

Changes to the unfair contract terms regime include:

• Widening the definition of “small business contract” – The unfair contract terms regime will apply to a small business contract if at least one party to the contract:

1. 1. employs fewer than 100 persons (previously 20 persons); or
   2. has an annual turnover for the last income year of less than $10 million.

The changes removes the previous threshold which was determined by reference to the contract value (rather than the annual turnover).

• Broadening the approach to defining a “standard form” contract – The unfair contract terms reforms clarify a contract may be a “standard form” contract despite whether a party has an opportunity to:

c. negotiate changes to the contract that are minor or insubstantial in effect;

d. select a term from a range of options; or

e. negotiate terms of the another contract.

• Introducing penalties in relation to the use of unfair contract terms – The maximum penalty for individuals will be $2.5 million and for companies the greater of:

(a) $50 million; or

(b) if the court can determine the benefit that the company has obtained from the breach, three times the value of that benefit; or

(c) if the court cannot determine the benefit that the company has obtained from the breach, 30% of the company’s turnover during the period it engaged in the conduct.

Note: the Amendment also increases a number of other pre-existing penalties in the CCA to be in line with the above including competition law provisions and Australian Consumer Law provisions including unconscionable conduct, false or misleading representations, harassment and coercion and others. These changes (excluding in respect to unfair contract terms) took effect on 10 November 2022.

• penalties can be applied for each contravention – If a contract breaches the unfair contract term regime, each individual unfair contract term will amount to its own breach and attract a separate penalty. This means that a single contract could result in multiple penalties if it is not compliant.
• other remedies – In addition to penalties, the courts can make orders to void, vary or refuse to enforce a contract that has an unfair term, make orders to apply to existing contracts with a similar term to the term that the court has found unfair and issue injunctions.

What do I need to do?

The Amendment in respect of unfair contract terms will apply to new contracts made on or after 9 November 2023 and existing contracts renewed or amended on or after 9 November 2023. In preparation, businesses that supply goods or services to consumers or small businesses using standard form contracts should consider reviewing their standard form contracts to ensure compliance with the unfair contracts regime, specifically including to review:

• if any standard form contracts that previously did not fall within the unfair contract terms regime now fall within the regime; and
• if any standard form contracts could contain any unfair contract terms.

If either of the above apply, then companies should consider amending their standard form contracts to cover off on these issues prior to 9 November 2023.

The commercial team at Mahoneys is experienced in corporate matters. If you have any queries about the implications of this Amendment, please contact Mahoneys commercial Partner, Antony Harrison, or associate lawyer Nicola Whalley on (07) 3007 3777 or aharrison@mahoneys.com.au or nwhalley@mahoneys.com.au.

[1] Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 Explanatory Memorandum, section 1.6

Written by Nicola Whalley

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