The Australian Consumer Law has an unfair contract terms regime that prohibits businesses from including unfair terms in standard form contracts with consumers and small businesses.
In November 2022, the Australian government passed a new law to change the rules around unfair terms. These changes were in response to concerns that the previous rules weren’t strong enough to stop businesses from using unfair terms in their contracts. The new law will take effect from 9 November 2023.
What is the big change? Currently, if a contract term is found to be unfair, a court can only declare it void and unenforceable. But soon, courts will have the power to order businesses to pay a large fine if they include or rely on an unfair term.
For a corporation, the potential maximum penalty for each unfair term will be the greater of $50 million, 3 times the value of the benefit (if the court can determine that value of the benefit); or 30% of adjusted turnover during the breach turnover period (if the court cannot determine the value of the benefit). The court will also have a range of other remedies available.
Another important change is the expansion of the definition of ‘small business’. These laws will soon cover ‘small businesses’ that have up to 100 employees (instead of 20) or annual turnover of not more than 10 million. Further, these protections will soon apply irrespective of the value of the contract. As a result, more businesses will be able to rely on the unfair terms laws.
If you’re not sure what is a ‘standard form contract’ it is usually understood to be a ‘take it or leave it contract’. However, the amending legislation now provides more clarity for factors a court can consider when determining whether a contract is a standard form contract. For example, when determining whether a party to a contract was able to genuinely negotiate a contract, a court is to disregard instances where a party has negotiated minor or insubstantial changes.
What does this mean for you? Now is the time to identify and review your standard form contracts for the supply of goods and services to make sure they comply with Australian consumer laws.
The Australian consumer law provides that a term will be unfair if it meets three requirements: it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Please reach out to us at BDC Law if you have questions and want to know more about how these laws affect your business.