The legal landscape in relation to standard form and small business contracts and unfair contract terms (‘UCT’) is set for significant changes.
Under changes proposed in the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (“Bill”), the Australian Consumer Law and in the Australian Securities and Investments Commission Act 2001 (Cth), the definition of ‘small business contracts’ is proposed to change and new civil penalties for the use of unfair contract terms are proposed, which raises significant issues for all businesses when using, renewing and amending ‘standard form’ contracts.
Unfair contract terms exist if a specific term in a contract causes significant imbalance between the parties, is not reasonably necessary to protect legitimate commercial interests and would cause some detriment to the party should the term be used or relied on.
Should the Bill pass Parliament, the proposed changes would come into effect approximately twelve months after the Bill receives Royal Assent. Business should use this time, even before the Bill comes into effect to plan for these proposed changes and ‘get their house in order’.
What exactly changes?
The definition of a ‘small business’, who previously enjoyed some protection from UCT implications is proposed to change. The definition has been broadened to apply to businesses with less than 100 staff or an annual turnover of $10 million.
Additionally, Courts were previously only able to void terms which were deemed to be unfair and will now (if the changes proceed as proposed) be able to render unfair contract terms not only void but unlawful, and ultimately give Courts the power to impose significant civil penalties on the companies that use them in standard form contracts.
Whilst the Bill is of course yet to be legislated, penalties for any breach of the use of UCT will range on a case-by-case basis. In the case of a company, penalties may amount to the greater of $50 million, three times the value of the benefit of the use of the UCT or 30% of the adjusted turnover of the company during the period the UCT was in effect. Individuals who are found to be using UCT’s may also be liable up to $2.5 million.
It is important to note that multiple uses of UCT’s in the one contract are each separate breaches of the proposed legislation, and accordingly, may be subject to separate penalties.
What should I do?
Businesses should ensure that, should there be any risk that any of their standard form contracts potentially include any unfair contract terms, that these terms are now removed.
The wholesale changes proposed by the Bill will affect new contracts entered in after the commencement date of the act, existing contracts that are renewed after the commencement date and all other contracts which are varied after the commencement date.
We can assist with any review of standard form contracts to ensure that no UCT’s are present, protecting businesses and individuals from any potential claim.
More information
For more information, or to discuss the issues raised in this update, please contact Jeremy Goldman, Principal Lawyer, on (03) 8600 8886 or jgoldman@kcllaw.com.au or Lachlan Perkins, Lawyer, on lperkins@kcllaw.com.au or (03) 8600 8809.
Author
This Commercial and Corporate update was authored by Lachlan Perkins, Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.