Draft legislation to extend unfair contract term protections for small businesses and consumers

Exposure draft legislation has been released containing proposed amendments to extend the existing unfair contract term regime in the Australian Consumer Law and Australian Securities and Investments Act 2010 (Cth) regulating unfair terms in standard form contracts with consumers and small businesses.

The draft legislation comes almost a year after the initial announcement of proposed changes, including introducing penalties for including unfair terms in standard form contracts with small businesses, and using a broader definition of “small business” to expand the protection to more businesses. You can read our update about that announcement here.

Key changes proposed in the exposure draft are to:

• expressly prohibit the use of unfair contract terms in a standard form contract;
• empower courts to impose a pecuniary penalty for a contravention of this prohibition;
• establish a new rebuttable presumption that a contract term is unfair if a similar term, used in similar circumstances, has already been found by a court to be unfair;
• significantly increase the scope of the businesses covered by the protections. The definition of a “small business” would be extended to businesses that:
  • employ fewer than 100 persons (counting part-time employees on a pro rata basis, and casuals who work on a regular and systematic basis); and/or
  • had a turnover that is less than $10 million for its preceding income year.

Other notable changes proposed include:

• making repeat usage of a contract a factor for the court to take into account when determining whether a contract is a standard form contract;
• when determining whether a party was required to accept or reject the terms of the contract, or if the party was given an effective opportunity to negotiate (which are factors in determining whether a contract is a standard form contract), the court must not consider:
  • whether the party had an opportunity to negotiate minor or insubstantial changes to terms of the contract;
  • whether the party had an opportunity to select a term from a range of options determined by another party; or
  • the extent to which the party was given an opportunity to negotiation terms of another contract or proposed contract.

The consultation period on this draft legislation ends on 20 September 2021. Details about how interested parties can make submissions can be found here.

If you would like to discuss the proposed changes or how they may impact on your business please do not hesitate to contact Paul Dugan or Nicole Mead.

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.