Updates to the Unfair Contract Terms legislation set to expand protections

The phrase Unfair Contract Terms (UCTs) sends a shiver down small businesses and consumers alike, and allows larger, contract-issuing, businesses to rub their hands in glee. In the ten years that UCTs legislation has existed in Australia for the protection of consumers (and only four years for small businesses), UCTs are still wildly prevalent and can be back breaking.

At present, there is a power-imbalance between the contract-issuing party and the small business/consumer which causes UCTs to remain a readily available method of shifting risk down the line. The most common risk that contract-issuing parties pass down is financial risk on a “take-it-or-leave-it” basis that is often unmanageable by the small business or consumer. This is especially true within the farming industry, and those tied to a single industry or supply chain.
These single industries, small businesses and consumers are also often unaware as to whether a contract is unfair, because they lack the resource to identify a potential UCT, and thereafter to take action.

The imbalance is fuelled by the lack of proper deterrents and penalties aimed at contract-issuing parties and access to remedies barriers for small businesses and consumers. For example, if a term is considered unfair by the Court, the worst case scenario for the contract-issuing party is that the term is voided. However, to get the UCT claim heard in Court, the small business or consumer must evidence a variety of requirements, one of which is the requirement to quantify financial loss or damage.

However, in a welcome move, Ministers have considered a Decision Regulation Impact Statement (RIS) and have agreed that action is required to further strengthen protections for consumers and small businesses from UCTs.
The RIS identified that:

1. UCTs need to be made unlawful;
2. there needs to be more appropriate penalties through the use of civil penalties (as determined by the Court) and power to vary the UCTs in addition to the Courts power to void the UCT – to automatically void UCT can cause contracts to become unworkable, cause delay and disruption or even a new contract to be required. This can lead the small business to lose access to vital funding;
3. there should be a rebuttable presumption that a term is unfair if the same or similar term was used previously (not necessarily with the same contract-issuing party) and held unfair – this would place the obligation on the contract-issuing party to prove why the term in question is different and therefore not an UCT;
4. expand the definition of a headcount and turnover threshold to meaning a business that employs fewer than 100 persons at the time of the contract and/or has an annual turnover of less than $10 million – this will allow more small businesses to take advantage of the protections;
5. reference to a contract value should be removed altogether;
6. clarity is required on what constitutes a Standard Form Contract including taking into account repeat usage of a contract template and whether the small business or consumer had an effective opportunity to negotiate; and
7. there is a need to provide an exemption for certain terms which meet certain minimum standards or other industry-specific requirements as contained within Commonwealth, State or Territory legislation.
   These changes will come into force by way of amendments to the Australian Consumer Law, Australian Securities and Investments Commission Act 2001 (Cth), and relevant State and Territory legislation. Currently there is no timetable set for the release of any draft legislation, but hopefully 2021 will see some positive changes.

To discuss these changes and the way it will affect future contracts, p[ease contact Solari and Stock Miranda on 8525 2700 to make a appointment with one of our Commercial Law Team, or click here to request an appoinment.

Photo by Markus Winkler on Unsplash