On 23 August 2021, the Federal government released the exposure draft Treasury Laws Amendment (Measures for a later sitting) Bill 2021: Unfair contract term reforms (Draft Bill) which proposes to amend the unfair contract terms (UCT) regime under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth).
The Draft Bill proposes to strengthen protections for consumers and small businesses under the current UCT regime to reduce the prevalence of unfair contract terms in consumer and business standard form contracts.
Proposed Changes to the UCT Regime
The Draft Bill proposes to make the following key changes to the current UCT Regime:
- Expanded class of contracts: the Draft Bill expands the class of contracts that are covered by the UCT regime by:
- expanding the application of the UCT regime to any standard form contract entered into by a business which employs fewer than 100 employees (as compared to 20 employees under the current UCT regime), or has an annual turnover of less than $10 million; and
- amending the definition of “small business contract” to remove the upfront contract value thresholds, which means that all standard form contracts with a small business must comply with the UCT regime.
- Prohibition on the use, application or reliance of an unfair contract term: the Draft Bill prohibits a person from proposing, applying, relying or purporting to apply or rely on an unfair contract term.
- Pecuniary penalties: the Draft Bill introduces pecuniary penalties for each contravention of the above prohibition (noting that a contract may be replete with contraventions of the prohibition). Under the proposed changes, a court may impose the following pecuniary penalties:
- for businesses, the greater of $10 million or three times the value of any benefit derived or to be derived from the contravention or, if the value of the benefit cannot be determined, 10% of the business’ turnover in the 12 month period prior to the contravention; and
- for individuals, $500,000.
- Expanding the role of the Court: in addition to the automatic voiding provisions under the current UCT regime that apply when a Court declares that a term in a standard form contract is unfair, the Draft Bill empowers the Court to make orders to:
- void, vary or refuse to enforce part or all of a contract where the Court deems it appropriate to prevent or reduce loss or damage that may be caused, or to remedy loss or damage that has occurred;
- 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 contract by a party who is the respondent to the proceeding;
- prevent or restrain a party from including, applying or relying on a term that is the same or substantially similar in effect to a term that has been declared unfair in other of the respondent’s standard form contracts; and
- issue public warning notices and make orders disqualifying a person from managing a corporation.
- Rebuttable presumption: the Draft Bill introduces a rebuttable presumption whereby if a contract term has previously been declared by a Court to be unfair,, a contractual term which is the same or similar in effect to the unfair term will be presumed to be unfair in another proceeding, unless and until the party seeking to rely on it can prove otherwise.
- Further clarity on what constitutes a “standard form contract”: the Draft Bill makes clear that when determining whether a contract is a standard form contract, the Court should consider whether a party has entered into a contract that is the same or substantially similar to another contract entered into by that person and the frequency in which this has been done. Further, in determining whether a party was able to genuinely negotiate a contract, the Draft Bill requires that the Court disregard instances where:
- a party has negotiated minor or insubstantial changes to the terms of the contract;
- a party was able to select from a pre-determined range of terms within a contract; and
- a party to another similar contract was given an effective opportunity to negotiate the terms of that contract.
When will the proposed changes to the UCT regime come into effect?
The proposed changes to the UCT regime will apply to standard form contracts entered into or renewed at the end of the 6-month period after the Draft Bill receives Royal Assent. A term of a contract varied after this date will also be subject to the proposed changes to the UCT Regime.
What does this mean for your business?
In anticipation of the proposed changes, businesses should:
- begin reviewing their standard form contracts to ensure that they comply with the proposed changes to the UCT regime; and
- ensure that employees are trained and made aware of their consumer law obligations.
