Major changes to unfair contract terms laws – the regime is here
On 10 November 2023, significant changes to the unfair contract terms (UCT) regime in Australia came into effect. With expanded application and the introduction of significant penalties for infringement, if you haven’t already, now is the time to assess whether your business is caught by this regime and if so, update your documentation accordingly.
What do these changes mean?
Australia’s UCT laws will now apply to more businesses and a broader range of contracts, and potentially severe penalties will apply to those parties who include or rely on an UCT.
The key changes to the regime are:
- Increased small businesses threshold – The UCT regime will now apply to agreements with businesses who have less than 100 full-time equivalent employees (up from 20 employees) or whose annual turnover is less than $10 million – that is, significantly more agreements may now be caught by the regime;
- Removed or increased contract value thresholds – Currently, the UCT regime applies to small business contracts with a value of less than $300,000 (or, if the contract term is more than 12 months, less than $1 million). From November, all such thresholds will be removed in favour of the functional business size tests listed above, except where a small business acquires financial services or a financial product, in which case the UCT regime will only apply to contracts valued at less than $5 million; and
- Broader standard form contracts – In determining what is a “standard form contract”, courts will be obliged to consider whether one party has made other contracts in the same or a substantially similar form, and how many, with its other suppliers or customers.
- Complete prohibition on UCTs – Whereas currently a term found to be unfair is rendered void, the Act introduces a complete prohibition on proposing, applying, relying, or purporting to apply or rely on, UCTs; and
- Significant new penalties – If found to propose, apply or rely on a UCT, individuals may receive substantial fines of up to $2.5 million, and corporations the greater of:
- $50 million;
- three times the value of the benefit received; or
- 30% of adjusted turnover (including turnover of related-bodies corporate) during the period in which the breach occurred (minimum 12 months).
- Expanded court powers – Courts determining a UCT claim will have the power to void, vary or refuse to enforce any part or all of a contract which contains UCTs. Further, courts will be empowered to prevent a person from entering into future contracts which contain a declared UCT, or relying on a declared UCT in any existing contract (whether or not that contract is before the court).
What should you do now?
With the reforms now here, it’s time for businesses to understand the extent to which they are impacted by the changes, and to prepare accordingly. In particular, it is important to:
- identify template contracts used by your business and assess if they may be a standard form contract (and whether counterparties are given a meaningful opportunity to negotiate them);
- assess the nature of counterparties to those standard form contracts, to determine whether you enter into contracts with consumers, or with parties with less than 100 employees or whose annual turnover is less than $10m;
- identify any one-sided, unfair or excessively favourable terms in those standard form agreements; and
- identify and document your company’s legitimate business interests, which can be used to justify the inclusion of contractual terms that would otherwise be considered risky from an UCT perspective.
See our related unfair contract terms articles below:
- What you don’t know about unfair contract terms: unmasking the hidden unfairness of non-disparagement clauses
- A tale of two deals – just because an indemnity is unfair in one, doesn’t make it unfair in another
- Less than one month to go: what will happen if you haven’t updated your unfair contract terms
If you would like to discuss the practical implications of the changes, or need assistance in conducting a UCT review of your standard form contracts, please get in touch with a member of our Digital and Intellectual Property team.
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.