A jump in penalties for competition and consumer law breaches and the unfair contracts regime expanded

Changes to Australia’s competition and consumer law mean businesses will now face new and increased penalties for breaches of the Australian Consumer Law (ACL) and the unfair contracts terms law. The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth) (Bill) received Royal Assent last week, which triggered a suite of changes to the Competition & Consumer Act 2010 (Cth) (CCA) and the ACL.

Key among those changes are:

• (Increased penalties) A fivefold increase in penalties for competition and consumer law breaches, to ensure “the price of misconduct is high enough” to deter anti-competitive behaviour and unfair activities.^[1] The new penalties apply from 10 November 2022.
• (Tougher unfair contract regime) A strengthening of the existing legislation surrounding unfair contract terms, including by expanding the regime’s application to contracts not previously covered by the law. This change will apply from November 2023 onwards, giving business 12 months to prepare.

What are the increased maximum penalties?

The Bill amends the maximum penalties under the CCA and ACL for a range of conduct, including breaches of civil penalty provisions in those parts of the legislation governing restrictive trade practices and consumer law. This means the new penalties will apply to instances of unconscionable conduct, false or misleading representations, unfair contract terms (from November 2023), referral selling, breaches relating to safety standards, anti-competitive agreements, exclusive dealing, and more.

The new maximum penalty for these offences is:

Particular attention should be given to the new definitions of ‘adjusted turnover’ and ‘breach turnover period’ in calculating damage. In summary, the 30 per cent will be calculated based on the value of all supplies made not just by the offending body corporate but also its related bodies corporate (in connection with Australia) during the period of the breach (a minimum of 12 months).^[1] Penalties under this limb, therefore, have the potential to be substantial.

The increase in available penalties is consistent with recent trends towards higher fines being sought and imposed by the Australian Competition & Consumer Commission and Courts, respectively.

What are the changes to unfair contract terms?

Unfair contract laws are designed to deter the use of unfair contract terms when engaging with consumers and small business under “standard terms” arrangements. Currently, these laws allow a court to declare unfair terms contained in such standard form contracts to be void and unenforceable.

The Bill amends both the CCA (including the ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act) (which is concerned with financial products or services contracts). This article considers the ACL changes only.

The key areas of reform are:

• (Pecuniary penalty) Under the existing ACL, an unfair contract term is deemed void but does not attract a pecuniary penalty. The Bill means (the above new and increased) pecuniary penalties will apply to any person who makes a contract to which the law applies that contains an unfair contract term and/or applies or relies on, or purports to apply or rely on, an unfair contract term in a relevant contract.

Each unfair term in a contract will constitute a separate contravention.

• (Small business contract thresholds) The definition of “small business contract” is being expanded. From November 2023, it will encompass contracts where at least one party:
  • made the relevant contract in the course of carrying on a business and at a time when they employed fewer than 100 persons; and/or
  • had a turnover for the party’s last income year ending at or before the time the contract is made, of less than $10 million.

This will replace the existing provisions which require one party to the contract to have fewer than 20 employees and the contract to have an upfront price payable of less than $300,000 (or $1,000,000, if more than 12 months).

(Determination of standard form contracts) When determining whether a contract is a standard form contract, the court will now be required to consider whether one of the parties has made another contract in the same or substantially similar terms and, if so, the number of contracts that party has made. Similarly, the Bill inserts an explicit acknowledgement in the law, which recognises that a contract may be deemed to be a standard form contract despite there being:

• an opportunity for a party to negotiate changes to terms that are minor or insubstantial in effect;
• an opportunity for a party to select a term from a range of options determined by another party; and/or
• an opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.
• Remedies

In addition to the new penalties, the Bill introduces new remedies. In particular, a court will be permitted to make an order preventing a party from including a term in any relevant contract in the future that is the same, or substantially similar, in effect to a term declared unfair.

These changes will commence from November 2023 and apply to contracts made or renewed, and contractual terms varied on, or after, that date.

Key takeaways

Industry should be aware of the increased maximum penalties and expanded scope for breaches of these competition and consumer law provisions, and take pre-emptive action to minimise their risk. Recommended steps include:

• considering whether any of your customers or suppliers fall within the expanded small business contract thresholds; and
• assessing what standard form contracts are in use in your business, and undertaking a review to identify any potentially “unfair” contract terms, ahead of the new regime commencing.

How can we help?

Our team can assist you in understanding your competition and consumer law risks, developing new terms or mitigating policies and processes, and delivering compliance training.

We can also assist you in dealing with any ACCC investigations and enforcement actions. If you have any questions, please contact us below or send in your enquiry here.

¹ Certain supplies will be excluded from this assessment. See: Explanatory Memorandum, Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth).

² Explanatory Memorandum, Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth).

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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