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A New Era for Unfair Contract Terms under Australian Consumer Law

Key Changes and Penalties Unveiled


Effective 10th November 2023, Australia's unfair contract terms (UCT) landscape will experience a seismic shift. Enforced by Schedule 2 of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022, these changes aim to strengthen the protective barrier around consumers and small businesses entering or renewing what's known as a 'standard form contract' under Australian Consumer Law (ACL).

Why this change? The Amendments have been engineered to lessen the presence of unfair contract terms, effectively banning their use and reliance in standard form contracts.

Here's how it unfolds:

Unpacking the New Standard Form Contracts

Until now, the ACL's definition of 'standard form contracts' has been primarily confined to cases where consumers or small businesses have had no scope to negotiate terms, essentially presented with a 'take it or leave it' deal. But, with the Amendments, the concept is set to broaden.

The revised definition will now encompass scenarios where negotiation is actual or possible. Contracts might now be classified as 'standard form contracts' even if a party can negotiate minor terms, choose from a range of options offered by the other party, or negotiate terms of another proposed contract. The courts, in evaluating whether a contract qualifies as a 'standard form contract', may also consider the party's historical usage of similar contracts.

A Broader Shelter for Small Business Contracts

Since their introduction into the ACL in 2016 by the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015, 'Small Business Contracts' have been under the umbrella of unfair contract terms protection. The Amendments aim to widen this shelter further.

Here are some key differences between the current law and the Amendments:

Current Law:                                                                                  Amendments:

Only applicable to businesses: with fewer than 20 employees; and  the upfront cost payable under the contract is less than $300,000; or the contract has a duration of more than 12 months and the upfront costs under the contract do not exceed $1,000,000 Applicable to businesses: with fewer than 100 employees; or a turnover for the last income year of less than $10,000,000.

Enhanced Protection

In addition to expanding its reach, the Amendments empower courts to void or alter entire contracts to shield parties from probable losses or damage. They may also restrict a party from leveraging any term (same or similar) found to be unfair in any existing contract or future contracts. Regulators like the Australian Competition and Consumer Commission (ACCC) can also appeal to courts to prohibit an unfair term from being included in any standard form contract.

Heftier Penalties

A pivotal part of the Amendments is the new, steeper penalties for suggesting, using, or even hinting at using unfair contract terms under the ACL. Earlier, the ACL did not penalize suppliers or manufacturers for using standard form contracts with unfair contract terms. The Amendments, however, shift the responsibility onto suppliers and manufacturers to ensure their standard form contracts are free of unfair contract terms.

Corporations found violating the ACL under the new UCT regime may face maximum financial penalties of either $50 million, three times the value of the "reasonably attributable" benefit obtained from the conduct, or 30% of the adjusted turnover during the breach period, whichever is higher. For individuals, the maximum penalty will surge from $500,000 to $2.5 million.

Looking Ahead

With the Amendments set to be implemented in less than six months, it's crucial for parties to review the terms of their existing and upcoming standard form contracts prior to November 2023. The Amendments are not just about heftier penalties; they also broaden the scope of the ACL to regulate unfair contract terms more stringently. This fundamental shift in the Australian contract law landscape is intended to restore power balance, placing a strong emphasis on fairness and equitability.

Ultimately, these revisions represent a significant step forward in fostering better contract practices. However, the immediate implication is clear: it's time for businesses, consumers, suppliers, and manufacturers to revisit their standard form contracts, ensuring they're not only fair and balanced, but also compliant with the new, tougher regulations. The amendments are more than just a legal update; they're a prompt for businesses to reevaluate their contractual relationships, making sure they stand on the foundations of fairness and justice.

Contact us today to learn how we can assist you. To get in touch you can connect with us on (03) 8691 3111 or send us an email at hello@alliedlegal.com.au

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