News & Insights

As reported in our recent updates, the current Unfair Contract Term (UCT) regime is significantly being expanded, with changes taking effect on 10 November 2023.

The changes will:

• expand the definition of a “small business” to include businesses with up to 100 employees or up to $10M in annual turnover;
• clarify that the inclusion of an UCT will now be considered an offence; and
• allow regulatory bodies to seek substantial fines for breaches under the UCT regime, of up to $50 million (or more) per contravention.

Due to the expanded definition of a small business, a greater number of businesses using existing and new standard form contracts will be captured under the UCT regime.

As the regime has been in force for some time, there has been growing understanding of the types of clauses that may be considered unfair. Although, it should be noted that ‘fairness’ is subjective and dependent on the facts and nature and circumstances of the parties.

Terms in a standard form contract may be found unfair where they:

• create a significant imbalance in the parties’ rights and obligations under the contract;
• do not protect a party’s legitimate business interests; or
• are likely to cause financial or other harm to the party if enforced.

So, any guidance or determinations in relation to common contracts or specific industries are useful.

Fertiliser suppliers ordered to amend Unfair Contract Terms

The Australian Competition and Consumer Commission (ACCC) has completed initial investigations on potentially “Unfair Contract Terms” in fertiliser suppliers’ standard form contracts. This has led to many suppliers amending their contracts.

The ACCC investigation began after it received complaints from farmers. As a result, the ACCC reviewed a wide range of standard form fertiliser supply agreements and concluded a range of potentially unfair contract terms were included.

The potentially unfair terms of concern to the ACCC included:

• terms giving the supplier the right to unilaterally vary the quantity to be delivered to the buyer;
• the supplier’s right to terminate the agreement if the supplier believed it would not be able to supply the goods; and
• terms that restricted the buyers’ rights to raise issues about defects with the goods.

As a result, all the fertiliser suppliers with whom the ACCC engaged during its investigation, co-operated and varied their contracts.

This review has also caused the ACCC to decide to continue its monitoring of the fertiliser supply industry. Suppliers need to take care about imposing terms that maybe unfair, , especially given the upcoming broadening of the UCT regime.

Penalties arising from UCTs

From 10 November 2023, changes to the UCT regime will allow the ACCC to take court action against businesses breaching the new Unfair Contract Term laws.

The maximum fine per contravention (eg. per unfair term) could reach the greater of $50M or three times the value of the benefit derived from the unfair clauses. If the courts are unable to determine the benefit, the fine can be 30% of the company’s turnover during the period in which the terms were in force.

Important reminder for businesses

Due to the upcoming Unfair Contract Term laws, it is vital for your business to do the following prior to November 2023:

1. Review and update your standard form contracts to ensure compliance with the new changes to the UCT regime.
2. Seek advice on clauses of potential concerns or challenges.
3. For ‘small businesses’ who are entering into a standard form contract with your vendor/supplier, review these contracts, and seek advice if there are any UCTs or potential UCTs included. The ability to negotiate has been bolstered.

Need more information or assistance?

Macpherson Kelley are here to provide advice on the UCT regime changes, review your standard form contract, and assist with re-drafting terms that are potentially unfair.

For further assistance please contact one of our experts.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.