Written by: Brett Lyndon – The Pro Forum Community of Practice
The Treasury Laws Amendment (More Competition, Better Prices) Act, 2022, received Royal assent 9 November 2022. Schedule 2 – unfair contract terms, comes into effect 9 November 2023. This legislation amends both the Competition and Consumer Act 2010 (CCA) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) to improve small business protections against unfair contract terms.
The new law applies to standard form contracts entered into or renewed on or after 9 November 2023, where one party is a small business (less than 20 employees) and the other party is a larger business or government agency.
Under the new law, a term in a standard form contract will be considered unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- would cause detriment to a party if it were relied on.
Previously, if a term was found to be unfair, it would be void and unenforceable, and the rest of the contract would continue to be binding on the parties, to the extent that it could operate without the unfair term.
Examples of unfair terms may include terms that:
- Unilateral discretion – Terms that give business unilateral discretion to do something e.g. variation provisions
- Price transparency – Terms that permit one party to change the upfront price of the contract without allowing the other party to terminate the contract.
- Breach – Terms only permit one party to penalize the other for breach or termination of the contract
- Indemnity – Terms that excessively extend liability to a party beyond what would be reasonably necessary to adequately protect the other party.
- Warranties – Onerous warranties especially if those warranties are unilateral
- Termination – Terms that only permit one party to terminate the contract
The new law provides for penalties for businesses that include unfair contract terms in their standard form contracts. These penalties can include fines of:
- Up to $2.5 million for individuals,
- The greater of $50 million, 3 times benefit gained or 30% of adjusted turnover (Australian Consumer Law)
- The greater of 50,000 penalty units, 3 times benefit gained or 10% of annual turnover (to a maximum 2,500,000 penalty units (Australian Securities and Investment Commission Act))
Application of this new law applies in relation to a contract that is made at or after 9 November 2023. This means any new contract or contract renewal, contract variation or new clauses, are impacted by these changes. These changes DO NOT apply to existing contracts and terms that commenced before the implementation date.
Overall, the new law aims to promote fairness and transparency in commercial contracts and to protect small businesses from being disadvantaged by unfair contract terms.
Further information on these changes can be found here: Treasury Laws Amendment (More Competition, Better Prices) Act 2022
What does this mean for your organisations contracts? Add your comments below!!!
NOTE: The content of this article is intended to provide a general guide to the subject matter, and specialist advice should be sought about your specific circumstances. The content must not be relied upon as legal, technical, financial or other professional advice.