It’s Not Fair! Unfair Contract Terms and What You Can Do

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) received Royal Assent on the 9^th of November 2022, introducing various amendments to the Competition and Consumer Act 2010 (Cth). Included in this were changes to the previous Unfair Contract Terms (UCT) regime.

The majority of the reforms to the UCT regime had a 12-month transition period, with it being recommended that businesses review their standard form contracts to remove or alter existing unfair contract terms. The reforms will be applicable to any standard form contract, or term of a contract, made or renewed on or after the 9^th of November 2023.

Standard form contracts are often relied upon by businesses as they are both time and cost effective. However, consumers and small businesses often lack the power and resources to effectively negotiate their terms. The reforms to the UCT regime were designed to increase protections available to consumers and small businesses subject to unfair contract terms, while disincentivising anti-competitive and unfair practices.

 

Changes

Increased penalties

Under previous legislation, UCTs did not attract penalties, with courts only able to declare UCTs void and unenforceable. Now, the maximum financial penalties for use of UCTs (by corporations) will be the greatest of:

• $50,000,000; or
• Three times the value of the ‘reasonable attributable’ benefit obtained from the conduct (provided the court can determine this); or
• If the court cannot determine the value of the benefit, 30% of adjusted turnover during the breach period.

Every unfair term within a contract constitutes a separate contravention of the law, with pecuniary penalties able to be imposed on this basis.

Broader definition of small business

The bracket of small businesses who can rely on these protections has been expanded. While previously defined as a business which employs under 20 persons, small businesses now include those who employ fewer than 100 people or have a turnover of less than $10 million for the previous income year.

Changes to designation of standard form contracts

Under the reforms, a contract may be deemed a standard form contract even in the following circumstances:

• Where a party was able to negotiate minor or insubstantial changes;
• Where a party could select a term from various other options determined by another party; or
• Where a party to another contract was able to negotiate the terms of the contract.

 

Application

What is considered ‘unfair’ is not explicitly defined by the Act. For a court to decide that a term is unfair they must be satisfied that the term (s 24(1) ACL):

• Would cause significant asymmetries in parties’ rights and obligations under the contract; and
• Would not be reasonably necessary to protect the legitimate interests of the party who would otherwise benefit from the term; and
• Would be detrimental to a party if applied or relied on.

Relevant considerations a court may take into account when deciding a term’s fairness include the transparency of the term, the context of the broader contract (s 24(2)), the particular interests of the consumers affected, and the broader interests of consumers.

For an adverse finding, the court must find that the application of the term would cause detriment to a party, either financial or non-financial. Claimants do not need to demonstrate actual detriment, just its substantial likelihood.

 

Court powers

The reforms included an expansion of the court’s discretionary powers with respect to UCTs. If a court finds that a term is unfair, it possesses the power to:

• Impose an injunction restraining the party from acting upon that term or similar terms in both the present contract and any of the advantaged party’s future contracts;
• Grant compensation to affected parties;
• Grant an order to provide redress to non-party consumers; and
• Impose any other orders considered appropriate.

 

Examples

Commonly seen unfair contract terms include:

• Automatic renewal clauses, where the renewal period is excessively long;
• Unilateral price increases, where customers are unable to negotiate or terminate the contract;
• Terms which permit one party (but not the other) to avoid or limit performance of the contract, such as through an exclusion clause; and
• Terms which allow one party to unilaterally terminate the contract, without legitimate reason.

This article was prepared with the assistance of Clea Philips.