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Changes to the unfair contract terms regime to significantly expand protections

18 November 2020

#Corporate & Commercial Law, #Competition & Consumer Law

Published by:

Madison Tonkes

Changes to the unfair contract terms regime to significantly expand protections

While unfair contract terms (unfair terms) have offered some protection for consumers for the past 10 years (and four years for small businesses), the government is set to increase the protections against unfair terms to address instances where they still remain prevalent, and make it easier for regulators to tackle these types of terms.

Unfair term laws apply to standard form contracts issued to small businesses and consumers. Currently, courts have the power to determine whether a term is an unfair term, however a court cannot impose a penalty for the use of an unfair term – instead if a court finds the term to be unfair, the unfair term will be automatically void. Following a long campaign for change by the ACCC, the government has announced it is set to make a number of changes to unfair term laws as set out below.

What are the proposed changes?

The Commonwealth and state and territory governments have agreed to strengthen the unfair term laws by making seven key changes, as follows:

1. Civil penalties apply
Courts are to be given the power to issue civil penalties for breaches of unfair terms laws. There has been no announcement as to how these penalties are to be calculated.

2. Flexibility of appropriate remedies
Courts will be given greater flexibility when it comes to remedies for breaches of unfair terms laws. Under the changes, an unfair term will not be automatically void and a court will be able to select a more appropriate remedy.

3. Greater access to remedies
Currently, courts are able to make orders against a contractual party where they have been unfairly advantaged by an unfair term to redress loss or damage incurred by a class of persons (including “non-party consumers”, namely consumers that may not be part of the legal action but were subject to the term by way of standard form contract). The government has proposed expanding the scope of persons who can access remedies for a breach of the unfair term regime by clarifying that remedies that are available to “non-party consumers” are also available to “non-party small businesses”.

4. Broader application
The definition of “small business contract” under the Australian Consumer Law is to be expanded by eliminating the requirement that the upfront price of the contract must be below $300,000 for a contract of less than a year (and $1 million for a contract of a year or more). The eligibility threshold for the protections will also be changed to allow access by business with less than 100 employees (previously less than 20 employees) or an annual turnover of less than $10 million.

5. Clarification of “standard form contract”
Presently there is no definition within unfair terms legislation for a “standard form contract”. To provide further clarity around this term, further factors for consideration will be introduced, such as whether there has been repeat usage of a contract template. 

6. Presumption of unfairness
A term will be presumed to be unfair if the same or a substantially similar term was found to be unfair in similar circumstances in a separate case.

7. Minimum standards to be exempt
Certain clauses that require industry specific requirements or government mandated “minimum standards” will be exempt from the unfair term laws.

When will this happen?

These changes will be implemented by way of amendments to the Australian Consumer Law, Australian Securities and Investments Commission Act 2001 (Cth), and relevant state and territory legislation. Currently there have been no announcements as to timing or any release of draft legislation.

Next steps?

In order to prepare for these changes and to ensure your compliance with the new regime, it would now be prudent to review any standard terms used in your operations when dealing with consumers or small businesses.

Authors: Dan Pearce & Madison Tonkes

Published by:

Madison Tonkes

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