Proposals for unfair contract terms to be illegal
2 mins reading time
With the Federal Labor government pushing to see changes to competition and consumer laws to protect the consumer, not only are we seeing proposed increases to the maximum penalties, we are also set to see broadening of the Unfair Contract Terms (UCTs) regime.
The proposals to broaden the UCTs regime will also be subject to the proposed increase of maximum penalties for breaches of the Competition and Consumer Act (CCA). The strong support of the government behind the proposed Bill, means we are likely to see these proposals legislated and implemented quickly.
What’s changing?
The proposal is to significantly expand the UCTs regime as follows:
| Current Law - FROM | Proposed Change - TO | |
|---|---|---|
| UCTs | “Small business”: • less than 20 staff; and • the value of the contract is less than $1 million (if it is more than 12 months) or otherwise is less than $300,000. | “Small business”: • less than 100 staff; or • annual turnover of less than $10 million. |
| UCTs are void and unenforceable | UCTs are illegal with associated penalties | |
| If a declaration of unfairness has been made, the Courts can order a range of additional penalties, including: • UCTs are void and unenforceable; • Orders to prevent a similar term being used in any future contracts (whether with that party or with any other party); • redress to compensate or prevent loss and damage caused to the party by the unfair term; • redress to compensate or prevent loss or damage to any third parties who have a contract with a similar term; • injunction to prevent use of (or reliance on) UCTs in similar contracts with third parties; Many of these additional penalties can be sought at any time within 6 years from the date the contract term was declared to be a UCT. Many of these orders will also bind a person affected by the order, even if that person was NOT a party to the original proceedings. |
Impact on businesses
Although it is not yet confirmed, it is expected that possible breaches of the UCTs regime are likely to face the same increased penalties detailed in our maximum penalties article. The enforcement of these penalties is a way to ensure that businesses do not treat the inclusion of UCTs just as a “cost of doing business”.
Businesses need to continue to review their standard form contracts, and contracts that fall under the UCTs regime, as the terms that amount to UCTs are continually being interpreted by the courts and are constantly changing.
The changes for unfair contract terms are proposed to only apply to:
- New contracts entered into at or after the commencement date;
- Existing contracts that are renewed at or after the commencement date; and
- Terms of an existing contract that are varied at or after the commencement date.
It is also proposed that the operation of the expanded regime be reviewed and reported on 2 years after its commencement.
Need more information or assistance?
For further information or a review of your compliance with the upcoming changes to Australian Competition and Consumer Law, 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.
more
insights
Ghost flyer: Qantas ordered to pay $100 million for misleading consumers into purchasing ‘ghost flights’
Corporations and officers can now be held responsible for predatory business models
Honda Australia pays $18,780 for alleged breach of MVIS scheme
stay up to date with our news & insights
Proposals for unfair contract terms to be illegal
With the Federal Labor government pushing to see changes to competition and consumer laws to protect the consumer, not only are we seeing proposed increases to the maximum penalties, we are also set to see broadening of the Unfair Contract Terms (UCTs) regime.
The proposals to broaden the UCTs regime will also be subject to the proposed increase of maximum penalties for breaches of the Competition and Consumer Act (CCA). The strong support of the government behind the proposed Bill, means we are likely to see these proposals legislated and implemented quickly.
What’s changing?
The proposal is to significantly expand the UCTs regime as follows:
| Current Law - FROM | Proposed Change - TO | |
|---|---|---|
| UCTs | “Small business”: • less than 20 staff; and • the value of the contract is less than $1 million (if it is more than 12 months) or otherwise is less than $300,000. | “Small business”: • less than 100 staff; or • annual turnover of less than $10 million. |
| UCTs are void and unenforceable | UCTs are illegal with associated penalties | |
| If a declaration of unfairness has been made, the Courts can order a range of additional penalties, including: • UCTs are void and unenforceable; • Orders to prevent a similar term being used in any future contracts (whether with that party or with any other party); • redress to compensate or prevent loss and damage caused to the party by the unfair term; • redress to compensate or prevent loss or damage to any third parties who have a contract with a similar term; • injunction to prevent use of (or reliance on) UCTs in similar contracts with third parties; Many of these additional penalties can be sought at any time within 6 years from the date the contract term was declared to be a UCT. Many of these orders will also bind a person affected by the order, even if that person was NOT a party to the original proceedings. |
Impact on businesses
Although it is not yet confirmed, it is expected that possible breaches of the UCTs regime are likely to face the same increased penalties detailed in our maximum penalties article. The enforcement of these penalties is a way to ensure that businesses do not treat the inclusion of UCTs just as a “cost of doing business”.
Businesses need to continue to review their standard form contracts, and contracts that fall under the UCTs regime, as the terms that amount to UCTs are continually being interpreted by the courts and are constantly changing.
The changes for unfair contract terms are proposed to only apply to:
- New contracts entered into at or after the commencement date;
- Existing contracts that are renewed at or after the commencement date; and
- Terms of an existing contract that are varied at or after the commencement date.
It is also proposed that the operation of the expanded regime be reviewed and reported on 2 years after its commencement.
Need more information or assistance?
For further information or a review of your compliance with the upcoming changes to Australian Competition and Consumer Law, please contact one of our experts.