Be Prepared and Avoid Significant Penalties Introduced By The Unfair Contract Terms Regime Reforms

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) introduces various reforms to the Australian Consumer Law (ACL), including to the unfair contract terms regime applicable to standard form small business contracts. The reforms commence on 9 November 2023 and capture standard form small business contracts entered, renewed or varied from the commencement date.

The key reforms that legal practitioners and in-house counsel should be aware of, in respect of advising small businesses or businesses contracting with small businesses, include:

  • The use of, and reliance on, unfair contract terms in standard form small business contracts is prohibited.
  • A breach can result in a court ordering significant civil pecuniary penalties (including fines of $2.5 million for individuals and $50 million, or more in certain circumstances, for corporations) and other non-financial penalties.
  • Due to the widening of the definition of small business contracts the regime is likely to capture a broader class of a business’s contracts.

For legal practitioners and in-house counsel, ensuring compliance with the reforms could possibly be a lengthy and onerous task. Understandably from a commercial and legal perspective, potentially unfair contract terms have been included in contracts, as prior to the reforms there was no real penalty or incentive to remove such terms. If a court found the term was unfair it was deemed void and severed from the contract. End of story. However, wind the clock forward to the commencement of the reforms and businesses may find that there are a substantial number of contracts that will need to be reviewed for compliance to avoid significant penalties.

Further adding to the pressure to ensure compliance sooner rather than later is the Australian Competition and Consumer Commission’s (ACCC) 2023–24 Compliance and Enforcement Policy and Priorities published on 7 March 2023, which perhaps somewhat unsurprisingly, identify unfair contract terms in consumer and small business contracts as a priority enforcement area.

Practical Law’s latest unfair contract terms resource enables you to advise quickly and with confidence, with guidance to assist:

  • Determine whether a contract is subject to the unfair contract terms regime under the ACL.
  • Assess whether the terms of a standard form small business contract may be unfair.
  • Implement a general contract risk management strategy to reduce the risk of contravening the unfair contract terms regime.

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