Many Australian businesses have determined the upcoming changes to the unfair contracts regime to be a low risk on the basis that they do not deal directly with consumers or that the businesses they deal with are not sufficiently small to be subject to the regime.
The compliance risk of relying on standard form contracts to conduct business in Australia is set to significantly increase in 2023. With an expanded class of contracts soon to be covered, plus "unfair" contract terms to be prohibited and subject to penalty rather than merely void, it's time to reconsider whether your contracts may be caught before changes to the regime come into effect in November 2023.
Introduction
Amendments to the unfair contract terms (UCT) regime under the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) are set to commence on 9 November 2023.
The amendments broaden the scope of contracts that fall within the UCT regime. The amendments will also make it easier for both regulators and private parties to claim that contracts are standard form and protected by the enhanced UCT regime.
Given the length of time that businesses have been given to ensure their contracts are compliant before the amendments come into force, we anticipate that the ACCC will swiftly commence enforcement of the new regime when it comes into force in November 2023.
This article considers the expanded class of standard form contracts and small businesses, the new penalties, and what a business needs to consider to ensure it complies with the reforms.
Will your contract be subject to the UCT regime?
The amendments considerably expand the class of businesses that will be captured by the small business definition. As well, companies should consider whether their contracts are standard form contracts and therefore captured by the regime. Importantly, an alleged standard form contract is presumed to be a standard form contract unless the respondent proves otherwise.1 The following factors are relevant:
What is the effect of the changes?
It is important for businesses to remember that the UCT regime may apply even in dealings with a sophisticated or experienced small business. It also applies when using a standard form contract for the purchase of goods or services, as well as the supply of goods or services. This means that if your business uses standard terms to engage day-to-day ancillary services3 into your business, these standard terms will be relevant.
The infrastructure and projects sector is likely to be particularly impacted, as the changes will greatly increase the coverage of business-to-business transactions in that sector, where the industry is characterised by sub-contracting arrangements, expert consulting contracts and the purchase of materials, potentially from smaller businesses. Examples might include:
- Contracts between head contractors and sub-contractors
- Terms of trade and invoicing payment terms
- Works contracts
- Agreements for the supply of ancillary services e.g. cleaning, maintenance, marketing agencies, accounting services, travel services, transport and logistics services
- Retail leases
- Business loan agreements
- Software user agreements e.g. agreements for cloud or web based services
What remedies are available under the UCT regime?
Significant financial penalties will soon apply to any person or business that 'proposes, applies, relies or purports to apply or rely on' an unfair contract term. Importantly, this means exposure to enforcement action arises at the time an unfair contract term is offered to a counterparty, not only after the contract is in force. The recently increased maximum penalties available under the CCA are the greater of:
While previously the court could only determine that a term in a standard form contract was unfair and therefore automatically void, under the new regime, the court can also make orders to void, vary or refuse to enforce the contract, or prevent the same or a substantially similar term from being used in the future.
What are “unfair terms”?
A term of a standard form contract will be unfair if the term:
(a) causes a significant imbalance in the parties' rights and obligations under the contract;
(b) is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
(c) causes financial or other detriment to a party if applied or relied on.
While this will be determined on a case by case basis, the Federal Court decision in ACCC v Fujifilm Business Innovation Australia Pty Ltd & Anor4 provides guidance on the types of provisions likely to be found 'unfair', as set out below:
Next Steps
The ACCC has indicated in its recently released 2023-24 Compliance and Enforcement Priorities that it will be prioritising enforcement of the UCT regime and it expects businesses to comply with their obligations, particularly given the advance notice of the changes and the significant penalties. We anticipate the ACCC will be active in commencing proceedings to set the legal parameters of the new laws.
Businesses should prepare for these changes now by assessing their standard form contracts with their suppliers and customers to address any compliance risk.
1 ACL, s 27(1).
2 The amendments to the ASIC Act UCT regime, which relates to standard form consumer contracts for financial products and services, will require the contract to have an upfront price payable of less than $5 million.
3 For example, cleaning, maintenance, marketing agencies, accounting services, travel services, transport and logistics services.
4 [2022] FCA 928.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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