Changes Effective From 9 November 2023
On 9 November 2023, a range of amendments to the Australian Consumer Law (ACL) will come into force that will change the way the prohibitions on unfair contract terms are enforced. Although it is already advisable, from an ethical and commercial perspective, for businesses to steer well clear of anything that might be considered an unfair contract term, these amendments significantly heighten the legal risk with including unfair terms in any agreements.
Table of Contents
What is an unfair term?
A term in a contract is unfair under the new Australian Consumer Laws if:
- it creates significant imbalance in the parties’ rights and obligations under the contract;
- it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- it causes detriment (financial or otherwise) to a small business if it were to be applied or relied upon.
Although the ACL defines what may be considered an unfair term and provides examples of certain types of unfair terms, these are general concepts that courts may define in broad terms. Companies should therefore err on the side of caution. In a media release, the Australian Consumer and Competition Commission provides the following guidance:
- Consider both points of view and include terms that favour and protect both parties.
- Avoid broad terms.
- Meet your other obligations under the ACL.
- Be clear and transparent in your communications and the wording of the contract.
For some examples of unfair terms, see Unfair Contract Terms for Small Businesses: What to Look Out for.
What are the Changes?
The changes are as follows:
- For the first time, penalties will be applied for breaches of those provisions. For every breach, the penalty will be the higher of:
- $50 million (previously $10 million);
- three times the value of the benefit obtained by the unfair term; or
- 30% of the company’s turnover.
The penalities will apply to terms varied or added, or any contracts made or renewed, on or after 9 November 2023. They will also apply wherever a business seeks to rely on existing unfair terms.
- The scope of the prohibitions will increase. Whereas before they applied wherever the affected party was a business that employs less than 20 people, and where certain contract conditions were met, now it applies where the affected party:
- employs less than 100 people; or
- has a turnover for the previous income year of less than $10 million.
How Should My Business Respond to the Changes to the Unfair Contract Terms Regime?
These changes are generally intended to address situations where a dominant power decides to dictate the terms of an agreement in their favour. If you believe that a party may be attempting to get you to agree to an unfair contract term, you may use these new provisions as a disincentive. In such a situation, we also recommend seeking legal advice.
If you are concerned that you may be using unfair terms in your contracts, particularly in your standard form contracts, you should err on the side of caution, and consult a lawyer. There are negative legal consequences for using such terms even before the changes are implemented.
Lawpath’s agreements are drafted to comply with the Australian Consumer Law, allowing you to engage your customer without the risk of breaching these provisions.
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