What are the proposed changes to the Unfair Contract Laws?

Key points:

• Late last year, changes were proposed to statutory unfair contract terms (UCT), including those contained in the Australian Consumer Law (ACL) and the ASIC Act.
• The changes are designed to the strengthen and expand the UCT. They include the introduction of new powers for courts to impose civil penalties, more extensive remedies, and expanding the scope of the laws to cover more types of contracts.
• On 9 February this year, a new Bill was introduced which now brings these changes one step closer to becoming law.

Which contracts will the law apply to?

The changes proposed would apply to new contracts entered into, or existing contracts which are renewed or varied, on or after the commencement date.  

When will the changes take effect?

The commencement date is scheduled for 12 months after the Bill is passed (we don’t yet know when that will be).  This timing gives businesses time to prepare and make any necessary changes to their contracts.

What are the main changes?

The key changes proposed are as follows:

1. The category of contracts caught by the UCT laws would be expanded because:
   • The upfront contract value thresholds for small business contracts under the ACL is removed; and
   • The definition of “small business contract” is varied so that it applies where one party to a contract is either to be a business that employs fewer than 100 persons, or has an annual turnover of less than $10,000,000 for the previous income year (casual employees are excluded and part-time employees are counted as a fraction of a full-time equivalent).
2. New prohibitions would be introduced to make it unlawful where a party proposes to, applies, or does rely on an UCT;
3. A new financial penalty regime would be introduced to apply where a party is found to have breached the UCT.  Under that proposed regime the court could order a penalty of up to $500,000 for individuals and for corporations, the greater of:
   • $10,000,000;
   • three times the value of the benefit received, or
   • 10% of annual turnover in preceding 12 months (if the court cannot determine benefit obtained from the offence)
4. Courts would have broad new powers to order other remedies where they find the UCT have been breached, including to:
   • void, vary or refuse to enforce part or all of a contract if the court determines appropriate to prevent or reduce loss or damage to the injured party:
   • order an injunction against persons from entering into any future contract that contains a term that is the same or similar in effect to a declared unfair contract term.  The court can restrain a person from applying or relying on a term in any existing contract that is similar in effect to the declared unfair contract term whether or not that contract is before the court; and
   • issue public warning notices and make orders disqualifying a person from managing a corporation.

What do these changes mean for your business?

The changes, if passed, will affect a wide range of industries and sectors and will mean that more contracts are caught by the UCT laws. 

The risks to businesses will also increase, with breaches of the UCT attracting harsher financial penalties and other remedies which may be ordered by the court.

Businesses that deal with individual consumers and small to medium-sized businesses (including franchisees) using standard form contracts, should consider which contracts are covered, and seek legal review of those terms to ensure they do not contravene the UCT.

If you have any questions, or if you would like us to assist with drafting or reviewing the standard form contracts and terms and conditions for your business to avoid any potential breach of the UCT laws, please contact the Commercial Law Team Solari and Stock on 8525 2700 or click here to request an appointment.

Article written by Karina McDougall
Photo by Mari Helin on Unsplash