Changes to the Unfair Contracts Regime starting from 10 November 2023

Amendments to the Unfair Contracts Regime will commence on 10 November 2023 (2023 UCR) and will apply to standard form contracts that are made or varied from 10 November 2023.

There are currently no penalties for unfair contract terms under the Australian Consumer Law (ACL) other than the term is void in the contract. However, the 2023 UCR introduces serious penalties for businesses proposing or seeking to rely on unfair contract terms.

The maximum penalties for corporations for each term found to be unfair will be the greater of $50 million, three times the value or benefit obtained, or where the value cannot be determined, 30% of the adjusted turnover during the breach turnover period for the act or omission.

The Court may also order remedies against the business such as prohibiting the enforcement of the contract or preventing the same term from being used in the future.

The current Australian Unfair Contracts Regime

The UCR is contained within the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) (and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) which may apply instead, depending on the type of contract). The UCR was designed to protect consumers and small businesses from unfair terms in standard-form contracts that have been pre-prepared and are presented to the consumer on a “take it or leave it basis”, where one party is to either accept or reject the terms of the contract with no opportunity to negotiate.

What is an unfair term?

A term of a commercial contract or small business contract is unfair if:

• It would cause a significant imbalance between the parties rights and obligations under the contract;
• It is not reasonably necessary to protect the legitimate interests of a party who would be advantaged by that term; and
• It would cause detriment (financial or otherwise) to a party.

A non-exhaustive list of terms that may be considered to be unfair terms include a term that:

• permits one party to limit the performance of the contract (for example an exclusion of liability clause) as it has the potential to cause significant imbalance to the parties’ obligations.
• allows one party to vary or terminate the clause terms of the contract but not the other.
• penalises one party for breach or termination of the contract.
• allows one party to automatically renew or not renew or unilaterally vary the contract.
• allows one party to vary the upfront price of the contract without the right of another party to terminate the contract;
• limits one party’s liability or right to sue another party.
• a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract; and
• a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract.

The Court will consider a factual assessment of the available evidence and the extent to which the term was transparent (i.e. it is expressed to the other party in plain language, presented clearly and is readily available to the other party) and the overall terms of the contract when seen in the context of the counterbalancing terms.

Recommended contract review

Given the risks of enforcement by the ACCC or ASIC for non-compliance with 2023 UCR, businesses operating in Australia are encouraged to conduct a review of their standard form contracts well in advance to ensure their new standard form contracts entered into or amended from 10 November 2023 onward complies with the 2023 UCR.

Note: The contents of this article do not constitute legal advice and should not be relied upon as such. If this article pertains to any matters, you or your organisation may have, it is essential that you seek legal and relevant professional advice.

If you have any queries on this topic, please do not hesitate to contact our team.