Late last year, Australia’s State and Territory Consumer Affairs Ministers announced significant changes to the Australian Consumer Law Schedule to the Competition and Consumer Act 2010 (Cth) (ACL). These changes will expand the application of the current unfair contract terms provisions, and will make unfair contracts illegal.
When is a contract term ‘unfair’?
A contract, or a contractual term, may be considered unfair under the ACL if the contract is offered on a ‘take it or leave it’ basis (i.e. the contract is a ‘standard form contract’), and the contract:
- contains a term which enables one party (but not another) to avoid or limit their obligations under the contract;
- contains a term which enables one party (but not another) to terminate the contract;
- contains a term which penalises one party (but not another) for breaching or terminating the contract; or
- contains a term which enables one party (but not another) to vary the terms of the contract.
What is changing?
The new regime will provide protection to more businesses.
Under the current laws, the ACL provides protection to ‘small businesses’, which are defined as being those businesses with less than 20 employees. The proposed amendments will significantly expand this definition, so that the unfair contract terms regime will extend the current protections to a business:
- with turnover of less than $10 million per year; or
- which employs less than 100 employees.
Courts may impose financial penalties for breach.
Under the amendments to the ACL, unfair contract terms will become unlawful, and Courts may impose civil penalties against parties who use unfair contract terms. Damages and compensation may also be payable to parties affected by unfair terms, which could be significant.
No monetary contractual limits will apply.
The amendments will also remove the financial limits on the upfront contract value, which can often prevent a small business from accessing the ACL unfair contract terms relief.
Presumption of unfairness.
The amendments proposed will introduce a new presumption that a contract term is unfair, in certain circumstances where a Court has previously found that term to be unfair.
What happens if your agreements contain unfair terms?
Currently, unfair contract terms may be declared void by a Court. If this occurs, the unfair term will be deemed to have been removed from the contract and will be unenforceable. This position is set to change under the new amendments, and instead Courts will be able to determine a relevant remedy, which can include financial penalties and the awarding of damages, as discussed above.
What you need to do
At present, there is no set date for the changes to the ACL to come into effect, however it is important that businesses to start to review and revise their current contractual arrangements, to avoid any potential liability once the amendments are in place, which is expected to be later this year.
Need help to review your existing agreements in light of the upcoming changes to the unfair contract terms provisions? The Kalus Kenny Intelex commercial team can help.