On 10 November 2023, a new regime was introduced to further prohibit the use of unfair contract terms in standard form contracts with consumers and small businesses.
These changes have been brought about by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Amendment Act) which was assented to a year prior, on 9 November 2022. The Amendment Act also introduced higher penalties for breaches of the Australian Consumer Law, increasing penalties from $10 million to $50 million per for corporations, and from $500,000 to $2.5 million per individuals.
For the first time in Australian law, penalties now apply to circumstances where businesses or people make, apply, rely upon, or purport to apply or rely upon, unfair contract terms.
What is an unfair contract term?
An unfair contract term is defined under the section 24 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law) as one that:
- causes a significant imbalance in parties' rights and obligations
- is not reasonably necessary to protect the legitimate interests of the benefiting party
- is detrimental (financial or otherwise) to the other party.
Under Australian Consumer Law, any unfair term in a standard form consumer or small business contract will be void and unenforceable. Further prohibitive measures have been introduced by the Amendment Act.
What kind of contracts does this affect?
Standard Form Contracts
Standard form contracts are used by a business for transactions of the same type. If a party alleges that the contract is a standard form contract, the onus is on the other party to prove that it is not a standard form contract. In deciding whether a contract is a standard form contract, the court may consider:
- whether one party has all or most of the bargaining power
- whether the contract was prepared by one party, without any prior discussion between parties
- whether the contract took into account the specifics of the transaction.
Following the introduction of the Amendment Act, courts will consider whether the contract "in the same or substantially similar terms" is used on a regular basis by one of the parties.
The Amendment Act also allows for a contract to be defined as a standard form contract despite a party having had an opportunity to negotiate minor or insubstantial terms of the contract.
Consumer Contracts
Consumer contracts are defined as a contract for the supply of goods or services, or for the sale or granting of an interest in land to an individual whose acquisition of goods, services or interest is for personal, domestic, or household use or consumption.
Small Business Contracts
The Amendment Act has expanded the definition of a small business contract to mean a contract for the supply of goods or services, or sale or grant of an interest in land, in which, at the time of entering into the contract, at least one party:
- employed fewer than 100 persons (excluding casual employees, but including casual employees employed on a "regular and systemic basis"); or
- had an annual turnover of the previous financial year of less than $10 million.
What remedies and penalties are introduced under the new UCT regime?
As mentioned, the only recourse a disadvantaged party previously had in relation to unfair contract terms was to seek orders from the court to render the unfair contract terms void and unenforceable.
Under the Amendment Act, the court will have new powers to:
- Make declarations that a term in a consumer or small business contract is an unfair contract term
- Make orders for redress for loss or damage caused by an unfair term, or to prevent the loss or damage that term could cause
- Order injunctions to restrain parties from entering into future contacts that contain the same or similar terms
- Issue penalties for including, proposing to
include, applying, relying upon, or purporting to apply or rely
upon, unfair terms in standard form consumer and small business
contracts. Maximum penalties that will be applied are:
- For corporations, the greater of:
- $50 million for each unfair term contained in a contract
- 3 times the value of the "reasonably attributable" benefit obtained by the breach
- If the reasonably attributable benefit cannot be calculated, 30% of the corporation's adjusted turnover during the breach turnover period (must be a minimum of 12 months).
- For individuals:
- $2.5 million for each unfair term contained in a contract.
- For corporations, the greater of:
In calculating penalties, the court may consider a variety of factors including the nature and extent of the contravention, any loss or damage suffered by the other parties, the circumstances in which the contravention took place, and any previous conduct by the party of a similar nature.
The new Amendment Act also grants the ACCC powers to investigate and inquire into the terms of a consumer or small business contract to determine whether they should commence legal action against the business.
Case Examples
ACCC v Fujifilm Business Innovation Australia Pty Ltd[2022] FCA 928
In 2020, the ACCC brought proceedings against Fuji Xerox Australia and Fuji Xerox Finance (Fuji) for the use of unfair contract terms in their standard form contracts.
Fuji offered a range of printer rental services to businesses, and supplied relevant software to its customers. At the time, Fuji used 11 standard form contracts to engage with thousands of small businesses for the hire of printers and provision of related software.
On 12 August 2022, the Federal Court declared that these standard form contracts contained 38 unfair terms, including terms for automatic renewal, excessive exit fees and unilateral price increase.
Under section 23 of the ACL, the terms contained in these contracts were rendered void and unenforceable. Fujifilm were also prohibited from using such terms in their standard from contracts with small businesses for the following five years. Fujifilm were ordered to publish these orders on their website, to inform their customers, to implement a compliance program and to pay a portion of the ACCC's costs.
If this conduct had occurred after the introduction of this new unfair contract terms regime, the Court may have also imposed penalties against Fujifilm, and awarded redress to consumers and small businesses who had been affected by these terms.
ACCC v Smart Corporation Pty Ltd (in liq) (No 3)[2021] FCA 347
Smart Corporation Pty Ltd was a 4WD hire business whose standard form contracts with renting consumers were found to contain unfair terms under section 24 of the ACL. These unfair terms allowed for Smart Corporation to charge customers up to $500 each time they drove in the fog or heavy rain. These contract terms were rendered void.
Whilst no penalties were issued at the time, Smart Corporation was ordered to pay penalties in relation to misleading and deceptive conduct and unconscionable dealings under sections 18 and 20 of the ACL.
If this conduct had occurred after 10 November 2023, the Court may have also imposed penalties against Smart Corporation for inclusion of these unfair contract terms in their standard form consumer contracts.
Recent Undertakings by Fowler Homes Pty Ltd
On 13 December 2022, Fowler Homes Pty Ltd, a home building company in New South Wales was found by the ACCC to have included an unfair non-disparagement term in their contracts with consumers, that forbade them from complaining about their services without their express permission. Fowler Homes entered into a court-enforceable undertaking with the ACCC under section 87B of the Competition and Consumer Act 2010 (Cth), admitting that the non-disparagement term was unfair and agreeing not to enforce these terms in their current contracts. At its own expense, Fowler Homes undertook to contact all 434 customers who had entered into standard form contracts with Fowler Homes, advising them of this undertaking. Fowler Homes also agreed to establish and implement a Compliance Program to minimise risk of future breach.
Fertiliser Industry heeds warning from ACCC
Earlier this year, suppliers in the fertiliser industry and, more broadly, across the agricultural sector, have been warned by the ACCC to remove any unfair contract terms contained in their contract before 10 November 2023.
Beware of Unfair Contract Terms
Businesses (small and large) trading in Australia should be wary of these changes to the unfair contract terms regime. Section 25 of the Australian Consumer Law provides many examples of unfair contract terms.
Some unfair terms which may be of particular issue are:
- Automatic renewal clauses
- Unilateral variation clauses
- Unequal requirements, penalties or limitations of liability
- Excessive exit fees
- Unequal termination for convenience clauses
- Non-disparagement clauses that restrict a customer's lawful right to publicly comment about goods and services they have received.
Big businesses should look closely at their standard form contracts passed down to subcontractors and suppliers, especially under any contracts with participants who qualify for protection under the changes. Conversely small business signing standard form contracts with larger organisations should consider whether any of the terms which they have agreed to may be capable for review or renegotiation.
If you have any questions regarding whether your standard form contracts contain unfair contract terms, or regarding your rights as a consumer or small business under the new unfair contract term regime, please contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
