Significant changes to the unfair contract term provisions as contained within the Australian Consumer Law (ACL) in Schedule 2 of the Competition and Consumer Act 2010 (CCA) have now passed parliament. They will come into operation in approximately 12 months. The changes to the CCA will also alter the maximum penalties that can be imposed.
What has changed to the unfair contract term provisions?
The changes to the unfair contract term provisions will:
- Prohibit the proposal of, use of, application of, or reliance on an unfair contract term in a standard form consumer or small business contract.
- Classify a contract as a ‘standard form contract’ despite an opportunity for a party to negotiate insubstantial or minor changes, select terms from a range of options, or negotiate terms of another contract.
- Alter the definition of what constitutes a ‘small business contract’ by removing the ‘upfront price payable’ threshold, and in its place, change the threshold to fewer than 100 employees or less than $10 million annual turnover of a business. If either of these thresholds applies, it will constitute a small business contract.
- Provide the courts with the power, among other remedies, to impose a penalty for each instance a person applies, relies on an unfair contract term (or even purports to do so), or otherwise proposes an unfair contract term. This is a significant departure from the current law, which only permits courts to void unfair contract terms or prevent their further use.
These new penalties for unfair contract terms will take effect 12 months after the relevant Act receives Royal Assent. As penalties will be able to be imposed on each unfair contract term (rather than the contract as a whole), as well as each time it is made or enforced, businesses must review their standard form and small business contracts within the next 12 months.
Increased maximum penalties
The current maximum pecuniary penalties will be increased significantly for breaching the prescribed provisions of the CCA, including the ACL. Under the changes, the maximum penalties will be significantly increased for breaches of consumer laws and engaging in cartel conduct and other anti-competitive behaviour. In the case of individuals, it will increase from $500,000 to $2.5 million. In the case of companies, liable for the greater of $50 million (up from $10 million); if determinable – 3 times the value of the benefit obtained; or if not determinable – 30% (up from 10%) of the adjusted turnover during the breach turnover period. The increased penalties come into operation the day after the relevant Act receives Royal Assent.