Changes to unfair contract terms laws in Australia: what businesses need to know to be compliant

Small-business protections

Australian Consumer Law 

The UCT regime applies to a small business contract if:

• one party to the contract is a business that employs less than 20 people; AND
• the contract has a duration of less than 12 months, in which the upfront price payable under the contract must not exceed $300,000, or the contract has a duration of more than 12 months, in which case it must not exceed $1 million.

Australian Consumer Law

The UCT regime will apply to a small-business contract if one party to the contract is a business that:

• employs less than 100 people; or
• has a turnover for the last income year of less than $10 million.

Note: the monetary contract threshold has been removed.

ASIC Act 

The UCT regime will apply to a small-business contract if:

• one party to the contract is a business that:

• employs less than 100 people; or
• has a turnover for the last income year of less than $10 million.

• the upfront price payable under the contract does not exceed $5 million.

Under the Australian Consumer Law and ASIC Act, part-time employees are to be counted as an appropriate fraction of a full-time equivalent employee.

Civil penalties

No equivalent.  

A civil penalty may be imposed by the courts if a person proposes, applies, relies upon or purports to apply or rely upon, a UCT.

The maximum penalty for breaches of the UCT regime will increase under the new laws.

For companies, the penalty will increase to the greater of:

• $50 million (formerly $10 million);
• three times the value of the benefit to the company if able to be determined; or
• 30% of the corporation's turnover during the offence period (formerly 10% of the annual turnover only in the 12 months prior to the breach).

For individuals, the penalty is:

• $2.5 million (formerly $500,000).

These penalties will only apply to new contracts and renewals, or variations of existing contracts entered into on or after 9 November 2023.

Court powers 

The court currently has the following powers.

• Automatically void a term in a standard-form contract if the court determines it to be unfair.
• On application by an affected party, or the ACCC on behalf of a party or a non-party, void a whole or part of a contract or collateral arrangement when a person or class of persons has suffered, or is likely to suffer, loss or damage.
• Provide injunctive relief to restrain a party from applying, relying upon, or purporting to apply or rely upon, a term of a contract that has been declared unfair.

The court will soon have the following powers.

• Void, vary or refuse to enforce a contract if such an order is appropriate to prevent loss or damage that is likely to be caused by the UCT.
• On application by the ACCC, prevent a term that is the same or substantially similar in effect to a term that has been declared as unfair, from being included in any future standard-form small business or consumer contract.
• On application by the ACCC, prevent or reduce loss or damage that is likely to be caused to any person by a term that is the same or substantially the same in effect to a term that has been declared unfair.
• Provide injunctive relief to restrain a party from applying, relying upon, or purporting to apply or rely upon, a term of a contract that has been declared unfair.
• Provide injunctive relief restraining a person from entering into any future contract or applying or relying upon a term of an existing contract that contains a term that is the same or similar in effect to a term that has been declared a UCT.

Determining whether a contract is a standard form contract 

There are several factors the court must consider in determining whether a contract is a standard form contract.

One consideration is whether a party was required to:

• reject or accept the terms of a contract in the presented form, and
• whether another party was given an effective opportunity to negotiate the terms of the contract.

In addition to the current factors, a court must also take into account whether one of the parties to a contract has used the same or a similar contract before.

A court may determine a contract to be a standard-form contract despite there being an opportunity for:

• a party to negotiate alterations to contract terms that are minor or insubstantial in effect,
• a party to select a term from a range of options determined by another party, or
• a party to another contract or proposed contract to negotiate the terms of the other contract or proposed contract.

Exemptions 

Contractual provisions that are required or expressly permitted by the law of the Commonwealth, or of a state or territory, are exempt from the UCT regime.

The following will also be exempt from the UCT regime:

• contractual provisions that are legally mandated to be included in a contract under Commonwealth, state or territory law; and
• contract clauses that result in other contract terms being included in a contract because of the operation of a Commonwealth, state or territory law, insofar as the provisions would prevent the other terms from being included or operating as required by the law.   

Affected parties 

The current law refers to "non-party consumers", despite applying to both consumers and small businesses.

The new law clarifies this position and will refer to a "non-party".

Excluded categories of contracts 

No equivalent.

The following categories of contracts will be excluded from the operation of the UCT regime.

• The operating rules of licensed financial markets, such as ASX Limited.
• The operating rules of licensed clearing and settlement facilities.
• Real-time gross settlement systems approved as payment, and settlement systems by the RBA.
• Certain life-insurance contracts, to ensure positive consumer outcomes.