Unfair Contract Terms: What Do The New Laws Mean For You Or Your Business?
Written by: Gabrielle Andersen l Insight Team
At Canny Group, we like to keep our clients up to date on the latest legal developments, so for this month’s legal blog we will be focusing on the latest development in the Australian Consumer Law – the new unfair contract terms law reform that came into effect from 9 November 2023.
You may be wondering what unfair contract terms are and how they are relevant to your business! Here we’ll be answering that question, and show you exactly how these reforms impact your business’s standard form contracts and terms and conditions.
What Are Unfair Contract Terms?
The laws that are known of as the “Unfair Contract Terms” laws (or UCT) were originally brought in as a part of Australia’s consumer law in order to ensure a level playing field for small businesses and consumers who were contracting with larger businesses offering their contracts on a “take it or leave it basis”.
To fall under the UCT regime, the unfair contract terms must be in a “standard form agreement”. These are any contracts or agreements that are provided by a business to another party (a consumer or a small business) as a non-negotiable template. Any standard agreement you’ve had to accept without negotiation before signing up to a product or service – these are considered standard form contracts under the Australian Consumer Law.
If you’re a business owner, any of your standard terms and conditions, service agreements or supply contracts could potentially fall under the UCT laws.
Unfair Contract Terms in a standard form agreement are typically terms that:
- Would cause a significant imbalance in the parties’ rights and obligations under the contract;
- Are not reasonably necessary for the protection of the legitimate interests of the party advantaged by the term; and
- Would cause financial or other detriment to a party if it was to be relied upon.
Prior to the latest reforms, if a term was found to be unfair the term would be void and unenforceable. While this sounds good in theory, in practice it meant that such terms remained in many standard form contracts unless the consumer argued against their enforceability on the basis of the UCT regime.
That is all set to change with these new UCT reforms…
Legal Information: What Changes Took Place From November 2023?
The amendments to the UCT that came into effect from 9 November 2023 essentially take the consumer law protections a step further by widening the application of the UCT provisions, and also increase the penalties on companies found to have unfair contract terms in their standard form agreements.
As a result of the new amendments from this November, the following key changes have been made:
- Unfair contract terms are illegal (previously they were simply void, and the contract could continue to operate with the unfair term deleted);
- There are significant civil penalties for companies who still have unfair contract terms in their standard form agreements (previously there were no penalties on the company, although compensation could be applied for by the aggrieved party);
- And while previously a great number of small businesses were exempt from the UCT laws, the scope of what is considered a small business has now been significantly widened. Small businesses will now be any business with less than 100 employees and an adjustment turnover of less than $10 million;
- Importantly, under the new laws the maximum civil penalty for a body corporate (a catch all term to include companies or incorporated associations) that is found to have an unfair contract term in any new or renewed contracts from 9 November will be the greater of:
- $50 Million, or
- 3 x the value of any benefit derived from the unfair term, or
- 30% of the concerned company’s adjusted turnover during the relevant period.
- And if you’re an individual who has breached the new unfair contract terms laws, you could face a penalty of up to $2.5 million.
How Will The New Unfair Contract Terms Laws Impact You?
Are you a small business? Or a consumer? If the answer is yes then you are likely to come across a standard form contract – whether it’s one you provided or one you signed up to!
The question that will be whether it contains any unfair contract terms. For small businesses, this means having your standard contracts reviewed by a lawyer to ensure that you aren’t breaching the new UCT laws from November 2023.
The ACCC has asked businesses to cooperate with the new UCT laws by having their service agreements and any other standard form contracts reviewed. However, they have warned that where necessary they will take further action by seeking to enforce penalties against businesses with contract terms the ACCC believes to be unfair for consumer.
Want to know more about service agreements? Check out the previous blog we put together: Service Agreements.
Under its enforcement powers, the main areas that the ACCC is looking to target are:
- Unilateral variation: Does one party (usually the larger party) having unilateral powers reasonably protect their legitimate interests?
- Indemnities/limitations of liability: Are the costs covered reasonably incurred, and could they be within the other party’s control? Broad indemnity/limitation of liability clauses make one party liable for loss or damage caused, or contributed to by the other party, or make one party assume risks that are out of their control.
- Termination rights: On what grounds can a party terminate? Are the conditions or rights to terminate reasonable? It is important that any termination clauses in your contracts are reasonable and necessary to protect a legitimate business interest.
Some of these factors would require a very technical assessment, and it can be difficult to assess whether a contract term might be considered unfair. The term needs to be examined within the contract of the wider agreement, the relative bargaining power of each party and whether there is a corresponding right that balances that term.
To assist you in determining whether these laws could apply to your agreements, we’ve put together the following flow chart showing how and when the new laws will apply…
STEP ONE: Are your contracts, Service Agreements or terms and conditions, Standard Form Contracts?
Before we get into the detail of the new Unfair Contract Terms laws and what they may mean for you, let’s review again exactly what a Standard Form Contract is.
Standard form contracts are any contracts are any contracts offered by one party to another where there is limited or no room for negotiation or amendment of the terms of the contract. This means that any agreements you’ve either provided to others, or been a party to, which was a pre-written template, could be considered a standard form contract. Interestingly, this could include your terms and conditions on your website, or your Service Agreement or any other contracts containing the terms of trade for your business.
As you can see, this is a very wide range of documents that you use daily for your business, making it even more important that you look into whether they potentially contain unfair contract terms.
If you think you might have standard form contracts, it’s time to move on to step two…
STEP TWO: Is one of the parties either a consumer or a small business?
Has your contract been entered into with an individual for goods, services, or land, predominantly for personal or domestic use?
Or, are you or the other party a small business? Remember a small business has a BIG definition:
A business that employs 100 people or less, OR a business that has an annual turnover of $10 million or less.
If yes to either of these questions, then move to step three.
STEP THREE: Does the Contract Contain Any Unfair Contract Terms?
Some examples of terms that would be considered a breach of the new UCT laws are any terms that:
- Permit one party but not the other to terminate the contract;
- Allow one party to vary the terms of the contract, but not the other party;
- Act as a penalty when one party breaches the contract, particularly where there isn’t a corresponding penalty if the other party breaches the contract;
- Permit one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract, without a corresponding right for the other party if such variations occur; or
- Limit one party’s liability or rights to sue another party.
There are a range of other factors that could indicate the existence of an unfair contract term and as the laws come into effect more and more case law will show how this new UCT regime is enforced by the ACCC. If you have any concerns or questions please contact a business lawyer, here at Canny Group for a review of your standard form agreements, or any contracts that you might be signing up to.
Expert Legal Advice with Canny Insight
Our business lawyers at Canny Group are here to help with any questions you might have about these new UCT laws, and to arrange a review of your current agreements.
Get in touch with us to discuss your agreements and have us help you navigate Australia’s complex consumer laws and the new UCT regime.
