Major changes to the Unfair Contract Terms Regime: Time to act

Not sure whether the upcoming changes to laws about unfair contract terms apply to your business?

With the deadline of 9 November 2023 quickly approaching, DMAW Lawyers dispels some common misconceptions about the Unfair Contract Terms Regime.

It is likely that your business uses standard form contracts.

Most businesses use standard form contracts in one form or another. For example, if your business has a set of terms and conditions of trade or for the provision of credit, it uses standard form contracts.

These variations and the ability by customers to negotiate their contracts do not necessarily mean that contracts are not in standard form.

Whether a contract is in standard form will be fact dependent. The new changes to the regime include clarification that a contract may still be a standard form contract even if there are minor or insubstantial changes, even if options are provided and even if other parties have been able to negotiate terms.

More importantly, if a contracting party alleges that a contract is a standard form contract, that contract will be presumed to be a standard form contract unless the other party is able to prove otherwise.

Most businesses will be affected by the changes.

The stakes are high if you are not alert to the possibility that the changes will have an effect on your business. There will be major reputational and financial risks.

Customers are much more likely to take advantage of these changes under the regime from 9 November.

The new regime extends application of the regime significantly. Whilst the regime remains applicable to all contracts with consumers and small businesses, the meaning of ‘small business’ will be changed to mean a business with less than 100 full-time employees or with an annual turnover of less than $10 million in the previous financial year. The upfront price of the contract will no longer be a consideration (unless the contract relates to the provision of financial services or products where the upfront price threshold will be increased).

Under the new regime, it will be illegal to propose an unfair term in a standard form consumer or small business contract. It will also be illegal to apply or rely (or purport to apply or rely) on an unfair term in a standard form consumer or small business contract. Your business’ reputation will be compromised if it is found to have proposed, applied or relied on an unfair contract term in a standard form consumer or small business contract.

Pecuniary penalties can be imposed for each contravention of these prohibitions. The penalties range from a new maximum penalty for individuals of $2.5m and a new maximum penalty for companies which is the greater of: (1) $50 million; (2) three times the benefit obtained and reasonably attributable to the conduct; or (3) potentially 30% of the company’s adjusted turnover during the breach turnover period.

Under the current regime, there is no motivation on consumer or small business customers to raise unfair contract term issues with their suppliers. The potential remedy is simply that the unfair term is void. We expect customers will be more motivated to raise these issues under the new regime because of the introduction of significant civil penalties and other remedies. They may use the presence of unfair contract terms in their contracts to extricate themselves from their contractual obligations.

We would be pleased to work with you so that your business is prepared for these changes. Contact our experts for more information about the upcoming changes to the regime.