Skip to content

  • Home
  • COVID-19 Guide
  • COVID-19 AV library
  • Client results
  • Expertise
  • News & Insights
  • People
  • Our DNA
  • Inclusion and Diversity
  • Join us
  • Contact Us
Home / NEWS & INSIGHTS / Insight / Stronger Unfair Contract Terms Regime on the Horizon
Insight 26 November 2020

Stronger Unfair Contract Terms Regime on the Horizon

Earlier this month, and in an announcement that has been several years in the making, the Commonwealth and state and territory consumer affairs ministers met at the Consumer Affairs Forum and agreed to strengthen Australia’s existing unfair contract terms (UCT) regime to provide further protection for small businesses when entering into standard form contracts.

The UCT regime will be reformed by the introduction of new legislation to be drafted and released for consultation next year, with strong civil penalties on the horizon for non-compliance.

Current state of play

The current regime under Part 2-3 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA) has been in force since November 2016 and applies to standard form contracts that are either consumer contracts or small business contracts.  E.g. ‘take it or leave it’ standard form contracts.

A consumer contract is a contract where at least one party is an individual who acquires goods or services wholly or predominantly for personal, domestic or household use.  A small business contract is a contract where at least one party is a small business (20 or less employees) and where the upfront contract value is less than $300,000, or less than $1 million for contracts with a term of 12 months or longer. 

The CCA does not define what a standard form contract is, and it is determined on the facts, such as whether one party was required to ‘take or leave’ the contract or whether they were able to effectively negotiate the contract, and whether the contract takes account of the specific circumstances of the transaction or the parties.  Consumer and small business contracts are presumed to be standard form contracts unless it can be shown otherwise.

UCTs under the current regime are not unlawful, but may be void by a court or tribunal.  This relies on small businesses being aware of their rights and being willing and able to enforce them.  There are currently no penalties for businesses who include UCTs in their standard form contracts.  Companies who have been found to have UCTs in their contracts have been required to remove them, but have not been subject to any penalties for breaching the UCT provisions.

A contract term is unfair if:

  • 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.

Common UCTs include terms that permit one party but not the other to:

  • avoid or limit their obligations under the contract;
  • terminate the contract;
  • penalise for breach or termination of the contract;
  • vary the terms of the contract;
  • renew or not renew the contract;
  • vary the price payable without the other party being able to terminate; and
  • unilaterally determine whether the contract has been breached, or to interpret its meaning.

What is proposed?

The proposed amendments to the UCT regime, which aim to reduce the prevalence of UCTs and address non-compliance, will come despite lobbying from large businesses, who warned any changes would increase red tape and raise costs for large companies. 

The proposed amendments will:

  • make UCTs unlawful;
  • give courts the power to impose a civil penalty (which has not yet been established), as well as providing more flexible remedies when they declare contract terms unfair;
  • expand the definition of small business to those with less than 100 employees or an annual turnover of less than $10 million;
  • remove the requirement for the upfront price payable under a contract to be below a certain threshold;
  • improve clarity on when the protections will apply, including on what is a ‘standard form contract’, and whether a small business had an effective opportunity to negotiate the contract; and
  • exempting certain clauses that include ‘minimum standards’ or industry-specific requirements contained in legislation.

The proposed amendments follow the expansion of the UCT regime to insurance contracts which are subject to the Insurance Contracts Act 1984, which is due to come into effect from 5 April 2021.  While certain insurance contracts are already governed by UCT regime (for example, private health insurance contracts), the amendments will extend the regime to car insurance, travel insurance, life insurance and house and contents insurance policies, provided they are standard form contracts that are either consumer contracts or small business contracts.  The practical effect will be that all contracts of insurance, except for particular contracts providing medical indemnity cover, will be subject to the UCT laws from 5 April 2021.

What’s next?

The UCT regime shake up is intended to encourage all businesses to review their contracts and remove clauses which they may have otherwise retained (and continued to receive the benefit from) until the other party or the ACCC challenged the terms in court.

While the amendments are not likely to come into effect until the second half of 2021, the ACCC has increased action in this area recently.

Agreements caught by the UCT provisions include supply agreements, franchise agreements, finance contracts and retail leases.  We recommend having your existing contracts reviewed and amended ahead of the regime change to avoid what are likely to be significant penalties for non-compliance.  Early identification of UCTs is the best remedy to minimise exposure to the risk of a claim.

Please speak to a member of our Digital & IP team for a review of your existing contracts.

Special thanks to Jennifer Ashlan, Lawyer, for her assistance in putting this article together. 


This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

About the authors

  • Belinda Breakspear

    Partner
  • Alex Hutchens

    Partner
  • Matthew McMillan

    Partner

In other news

McR strengthens the Construction and Infrastructure team in Brisbane

McCullough Robertson strengthens its National Construction and Infrastructure team with key Partner hire in Brisbane

27 January 2021News

New Industrial Relations Laws – What it means for you

22 December 2020Insight

Payment Times Reporting Scheme

21 December 2020Insight

Australian Government proposes new broadcaster’s licence and forced investment quotas in Media Reform Green Paper

14 December 2020Insight

VIEW ALL NEWS & INSIGHTS

BRISBANE

Level 11, 66 Eagle Street
Brisbane QLD 4000
GPO Box 1855
Brisbane QLD 4001
Tel +61 7 3233 8888
Fax +61 7 3229 9949

 

GET IN TOUCH

Contact form

We handle your personal information in accordance with our privacy policy.

sydney

Level 32, MLC Centre
19 Martin Place
Sydney NSW 2000
GPO Box 462
Sydney NSW 2001

Tel +61 2 8241 5600
Fax +61 2 8241 5699

 

GET IN TOUCH

Contact form


We handle your personal information in accordance with our privacy policy.

melbourne

Level 27, 101 Collins Street
Melbourne VIC 3000
GPO Box 2924
Melbourne VIC 3001

Tel +61 3 9067 3100
Fax +61 3 9067 3199

 

GET IN TOUCH

Contact form

We handle your personal information in accordance with our privacy policy.

follow us

CLIENT LOGIN

newcastle

Level 2, 16 Telford Street
Newcastle NSW 2300
PO Box 394
Newcastle NSW 2300

Tel +61 2 4914 6900
Fax +61 2 4914 6999

 

GET IN TOUCH

Contact form


We handle your personal information in accordance with our privacy policy.

canberra

Level 9, 2 Phillip Law Street
Canberra ACT 2601

Tel +61 2 6243 3699
Fax +61 2 8241 5699

 

GET IN TOUCH

Contact form


We handle your personal information in accordance with our privacy policy.

© 2017 McCullough Robertson. Site map Disclaimer Privacy Policy Credit Reporting Policy

X