The current status
From 9 November 2023, expanded provisions for unfair contract terms (‘UCTs’) found in standard form contracts have taken effect under the Australian Consumer Law and the ASIC Act. These changes will apply to any new contract, and any amended or renewed contract, made from that date.
Before the reform, 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 are now illegal and attract significant financial penalties. The criteria for establishing whether a contract term is deemed ‘unfair’ have remained largely unchanged.
Small business threshold: As part of these reforms, the scope of small businesses eligible for Unfair Contract Terms (UCT) protections has been widened. To fulfill the updated criteria for small businesses, a company must either employ fewer than 100 individuals or generate less than $10 million in annual turnover.
Standard form contracts: The UCT protections continue to apply to standard form contracts. However, a significant change is that even if the other party is provided the opportunity to negotiate minor adjustments to the contract’s terms or to choose from a selection of term options, the contract may still be considered standard form. Also, a contract may still be classed as standard even if another party involved in a different transaction had the ability to negotiate and implement significant modifications to that same form of contract.
Notable legislative changes
The recent amendments have removed the monetary contract threshold formerly stipulated by the ACL, which restricted the upfront price payable in the contract to not exceed $300,000.
Under the ASIC Act, the UCT regime will now only apply to a small business contract if the upfront price payable (excluding interest) for the contract is $5 million or less.
Under the Australian Consumer Law, the maximum penalty for violations of the UCT regime has been raised.
For companies, the penalty has increase to $50 million from the previous $10 million, or it may calculated as three times the benefit gained by the company if quantifiable. Alternatively, it can amount to 30% of the corporation’s turnover during the period of the offence, as opposed to the previous penalty of 10% based on the annual turnover only within the 12 months before the breach. For individuals, the maximum penalty has been changed from $500,000 to $2.5 million.
These penalties will apply to new contracts, renewals, or modifications of existing contracts that are entered into on or after 9 November 2023.
If you would like us to review your standard templates in light of the new provisions, please contact us.
Author: Zaki Zeini, paralegal.