Changes to the ‘Unfair Contract Terms’ regime
A new regime now applies under Australian Consumer Law to contracts entered into or renewed following 9 November 2023, as well as any terms to existing contracts varied after this date. Unfair contract terms can attract significant penalties under the Competition and Consumer Act 2010 (Cth) and/or the Australian Securities and Investments Commission Act 2001 (Cth). Each individual unfair term contained in a contract will be considered a separate contravention, which has the possibility of the court finding multiple breaches within a singular contract.
Who will be affected by this?
The regime applies to standard form contracts with consumers or small businesses. The definition of ‘small businesses’ has been expanded by the regime to include those who employ 100 people or less (increased from fewer than 20 people) or any business with an annual turnover of less than $10 million.
With respect to whether a contract is a ‘standard form contract’, the following should be taken into consideration, among others:
- repeated usage of a contract (as contracts with the same or similar repeated terms across various consumers are more likely to be standardised);
- whether parties had a genuine opportunity to negotiate the terms of the contract;
- whether one party had all the bargaining power relating to the transaction; and
- whether the terms of the contract take into account the specific characteristics of the transaction.
What is an ‘unfair’ term?
The new regime does not make any changes to the test for ‘unfairness’, but, as a recap, a contract term would be deemed ‘unfair’ if it:
- would cause a significant imbalance in the parties’ rights and obligations under the contract;
- is not reasonably necessary to protect legitimate business interests; and
- would cause detriment (financial or otherwise) if it were to be relied upon or applied.
The court will also take into account the transparency of a term and the contract as a whole to determine whether a term is ‘unfair’.
If you are a business owner, it may be wise to consider refreshing existing standard form contracts to ensure compliance, especially with the broadened scope of who the regime will affect and the possibility of being liable for significant penalties.
Disclaimer: This publication is intended for general and informative use only and is not to be relied upon as professional financial or legal advice.
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