Changes to the unfair contract terms regime have now come into effect

Significant changes to the unfair contract terms regime, contained in the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act, came into effect on 9 November 2023. These changes are relevant to any business that uses standard form contracts to reach agreements with a small business or consumer.

The changes now expand the regime to apply to more contracts and significantly increase the consequences of including or relying, or purporting to include or rely, on unfair terms. The changes apply to contracts entered into or renewed (or terms varied or added) from 9 November 2023.

In particular, the changes include:

1. Making the inclusion of, reliance on, or purported inclusion of or reliance on, an unfair term in a standard form consumer or small business contract unlawful and subject to a civil penalty. Under the ASIC Act, Courts are now able to impose penalties per contravention of up to the greater of USD15.65 million, three times the benefit of the contravention or 10% of annual turnover capped at USD782.5 million. Under the ACL, Courts are now able to impose penalties per contravention of up to the greater of:
• USD50 million;
• three times the benefit obtained from the breach; or
• if the Court cannot determine the value of the benefit, 30% of the corporation’s adjusted turnover over the breach turnover period.
2. Expanding the definition of “small business contract” and, thus, the scope of the standard form contracts to which the regime applies. Under the ACL, a small business contract is now a contract for the supply of goods or services, a party to which is a business that employs less than 100 people (increased from 20) or has annual turnover of less than USD10 million in the most recent income year that ended at or before the time the contract was made. The contract value thresholds that previously applied to determine whether a contract is a small business contract under the ACL no longer apply. The changes are intended to make it easier for a contract-issuing party to determine if a standard form contract is a “small business contract” to which the regime applies, as well as to broaden the class of standard form contracts to which the unfair contract terms regime applies.
3. Clarifying that a contract may still be standard form despite there being an opportunity for a party to negotiate minor or insubstantial changes or to select a term from a range of options.
4. Introducing new remedies that courts may impose in proceedings alleging an unfair contract term. These include:
• new powers to make orders that apply to terms in a contract-issuing party’s other standard form contracts that are the same or substantially similar to the term found be unfair, including to issue an injunction restraining the contract-issuing party from including a term that is the same or substantially similar in effect to a declared unfair contract term in any of its other existing or future standard form contracts. These additional remedies substantially increase the potential impact for contract-issuing parties of any single proceeding alleging an unfair contract term;
• new powers to make adverse publicity orders; and
• new powers to impose management and directorial bans on individuals involved in making or giving effect to unfair contract terms.

Unfair contract terms are a current enforcement priority of the regulators responsible for administration of the regime, the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission. The regulators have stated that they will focus on enforcement once the new regime is in effect, rather than adopting an educational and compliance focus in the first instance. This is because the changes were passed by Parliament 12 months ago and businesses have had the opportunity to ensure compliance ahead of the changes coming into effect.