Unfair Contract Terms Update

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Overview

The introduction of unfair contract laws has visited a major change in the law relating to standard form commercial agreements. When first introduced in July 2010 the laws only applied to consumer contracts - however from November 2016 the laws were extended to cover small businesses. 

Review of Unfair Contract Laws

There is presently a statutory review being conducted in relation to the extension of the unfair contract laws to small businesses. The time for submissions closed in December 2018 and the review findings are likely to be known by mid 2019.

The review is considering most aspects of the operation of the unfair contract laws including:

  • the definition of a “small business” which is currently defined as a business which employs less than 20 people and the upfront price payable under the contract is less than $300,000 in a single year or $1 million if the contract extends for more than 12 months. Concern has been expressed by a variety of stakeholders that the “head count” aspect of the definition has practical difficulties. The review is also considering whether the amount of $300,000 is an appropriate threshold. The ACCC has indicated that it will submit to the review that the definition of a “small business” be expanded so that more businesses are brought within the regime;

  • whether further clarification should be given in the legislation as to what constitutes a “standard form contract”;

  • whether it is appropriate to continue to maintain the exemptions in the legislation which apply to terms that define the main subject matter of the contract or set the upfront price payable under the contract;

  • whether further examples or clarification should be provided in the legislation as to what constitutes an "unfair" term.

 

Other potential changes

The ACCC is pushing for changes to the Competition and Consumer Act 2010 (Cth) to allow the pecuniary penalty and other enforcement provisions of the Act to apply to unfair conduct breaches as they do for other breaches of the Australian Consumer Law, such as misleading deceptive or unconscionable conduct. So far the government has resisted those calls. It will be interesting to see if the present review process makes any recommendations on this issue. A change to the law in this area will apply significant added pressure to businesses to ensure their standard form contracts are compliant with the unfair contract laws - especially given the recent increase in the maximum pecuniary penalty order from $1.1 million to $10 million per breach.

Investigation Powers Strengthened

In October 2018, the ACCC’s investigative powers were boosted to enable it to compulsorily obtain information, documents and evidence to determine if a contractual term may be unfair. These new powers apply only in relation to contracts entered into on or after October 2018.

Conclusions

Unfair contract laws have visited a major change on consumer and commercial transactions throughout Australia - especially since November 2016 when the laws were expanded to cover small businesses. The present review process may make recommendations which further expand that reach and potentially result in breaches of the laws being subject to financial penalty orders. We will report further once the recommendations of the review are made public. In the meantime, it would be prudent for businesses to keep their standard form contract terms under review to ensure that they remain compliant with the unfair contract laws.  

For further information please don’t hesitate to contact:

Daniel St George
Senior Associate
daniel@couttslegal.com.au
1300 268 887

This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.