Businesses need to take another look at their standard contracts, now that the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 has expanded the unfair contract terms laws and introduced higher penalties for breaches of the Act.
Unfair contract terms status
Until these amendments, unfair contract terms in standard contracts with small businesses and consumers were void, but not illegal. The first key amendment is that unfair contract terms have become illegal and are now subject to significant financial penalties. The ACCC has welcomed this change due to the “adverse consequences of unfair contract terms on consumers and small businesses.”
Extended definition of small business contract
The second key change expands the scope of “small business” contracts to which the regime will apply. Now, a small business contract is a contract where one party to the contract is a business that employs fewer than 100 persons (previously 20 persons) or has a turnover for the last year of less than $10 million.
Another key point in this change is that where a party permits minor amendments to a standard form contract, it will still be considered as a standard form contract. Previously, it was considered that any negotiated change would be sufficient to avoid the effect of the unfair contracts rules.
The party which drafted the contract is required to prove that it is not a standard form. Remember as well that the rules apply even where the party which drafted the contract is also a small business.
With the extended definition of a small business contract, the new laws empower courts to rewrite commercial standard form contracts, including the power to void, vary, or refuse to enforce unfair contract terms.
Increased penalties for breaches of the Act
The third key change is the very significant increase of the maximum penalties under the Act for engaging in anti-competitive conduct and breaches of the ACL:
• $50 million (currently $10 million)
• Three times the value of the reasonably attributable benefit obtained from the conduct or
• If the courts cannot determine the value of the benefit, 30% of the body corporate’s turnover during the period it engaged in the conduct.
The ACCC hopes these penalties will serve as a “strong deterrent message to companies…to not mislead or act unconscionably towards consumers.” These amendments took effect on 10 November 2023.
Businesses should review their standard form contracts for terms that provide a significant advantage but go beyond what is needed to protect their legitimate interests. If you would like assistance to review your standard contracts, contact us.
Author: Ashna Govil, paralegal.