We recently wrote about the forthcoming increase to the monetary threshold for access to the Australian Consumer Law’s (ACL) consumer guarantees when acquiring goods or services, from $40,000 to $100,000 (see our article here). In a further development for consumer law protections, the Federal Government has announced its plans to enhance the unfair contract term (UCT) protections through a range of legislative amendments.
The unfair contract term regime protects consumers and small businesses from unfair terms in ‘standard form’ contracts – these are contracts that are offered on a ‘take it or leave it’ basis with little or no ‘effective opportunity to negotiate’ the terms. Standard form contracts are entered into for the supply of goods or services to consumers across many industries, including telecommunications, finance, domestic building, gyms, motor vehicles, travel and utilities. Whether a contract term is ‘unfair’ must be considered in the context of the contract as a whole. However, to be ‘unfair’, a term must meet specified criteria (see our article here for more information).
Draft legislation has not yet been developed. This will outline in detail the exact nature of the amendments, subject to stakeholder comment. However, broadly speaking, the key reforms agreed by Commonwealth and state and territory consumer affairs ministers are as follows:
Implications for consumers (including small (and now medium) business consumers)
If your business employs less than 100 people and has an annual turnover of less than $10 million, you may be able to avail yourself of newfound protection under the UCT laws. Until the proposed amendments are effected, consumers should be mindful of the types of terms that may be unfair and ask counterparties to amend or remove any term that they identify as unfair or else have the contract reviewed before entering into standard form contracts.
Implications for suppliers
Under the proposed amendments, courts and tribunals would be able to determine the appropriate penalty amount, up to the maximum set under the law. The Federal Government did not specify the precise nature of the penalty provisions. However, for corporations, the penalty for breach of other provisions of the ACL is the greater of: $10 million; three times the value of the benefit received; or where the benefit cannot be calculated, 10% of annual turnover in the preceding 12 months. For individuals, the penalty is $500,000.
Given this, if your business uses standard form contracts, you should carefully consider whether or not the proposed amendments require you to review your existing business practices and relationships to identify any that are likely to be caught by the expanded protections. The amendments will significantly increase the risk to businesses that use standard form contracts when dealing with small (and now medium-sized) business partners. In advance of UCTs becoming unlawful, it would be prudent to ensure that your standard form contracts are compliant.
If you have any questions about this article please get in touch with the authors or a member of our Corporate & Commercial team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.