Changes To Standard Form Contracts And The Sweeping Reforms That May Affect Your Business
On 9 November 2022, the Treasury Laws Amendments (More Competition, Better Prices) Act 2022 (Cth) (“Act”) received Royal Assent. This Act implements considerable variations to the Competition and Consumer Act (“CCA”), the Australian Consumer Law (“ACL”) and the consumer protection provisions of the Australian Securities and Investments Commission Act (“ASIC Act”).
In summary, the amendments to the Act include:
Penalties for CCA and ACL breaches have increased five-fold;
New prohibitions and penalties will apply for unfair contract terms;
Expanded application of the unfair contracts terms protections will apply to Business to Business contracts (“B2B contracts”); and
Extensive additional remedies have been provided for both regulators and private parties.
The key focus of this article is to discuss which contracts these amendments apply to, what the new penalties are, how the new protections in relation to B2B contracts apply, and whether this may affect your business.
When is a contract a Standard Form Contract Unfair Contract Terms (“UCTs”) in the context of this article apply to “standard form” contracts. Standard form contracts are template contracts presented on a take it or leave it basis that do not provide an effective opportunity for the consumer or small business to negotiate or amend them. Ordinarily, the Courts must take a number of factors into account in determining whether a contract qualifies as a standard form contract, this includes:
Whether one party holds the majority or all of the bargaining power in relation to a transaction;
Whether the contract was drafted prior to discussions occurring between the parties;
Whether one party was provided with a ‘take it or leave it’ option in relation to the transaction;
Whether an effective opportunity for negotiation was presented;
Whether the terms of the contract consider the specific characteristics of another party to the transaction; and
Any other matter prescribed by the regulations.
At common law, where one party alleges that a contract is a standard form contract, the onus is then on the other party to prove that it is not. What are the new Penalties Schedule 1 of the Act amends the CCA and the ACL to increase five-fold the maximum civil and criminal penalties applicable to certain competition and consumer law breaches with effect from 10 November 2022. For corporations, penalties will increase to the greater of:
$50 million,
three times the value of the benefit obtained; or
if the value of the benefit cannot be obtained, 30% of the adjusted turnover during the breach turnover period.
For individuals and non-corporate bodies, the penalties will increase to the maximum of $2.5 million. What is the application of the new B2B protections? Insofar as the protections in relation to B2B contracts are concerned, previously, B2B contracts, were provided certain levels of protection from UCTs in standard form contracts if they operated with fewer than 20 employees. However, the new Act expands the application of the UCT protections to businesses with fewer than 100 employees, and increases the annual turnover threshold to $10M before these protections no longer apply. What does this mean for me? Previously, if you operated a business that may have never dealt with UCT’s you may now need to be cognisant of UCTs in your standard form contracts considering the greatly expanded scope of application. How might this affect my business? Of noteworthy importance, the UCT regime, which is set to be in effect from 9 November 2023, will mean that additional penalties will apply to companies who are caught incorporating unfair terms in their contracts (including contracts that are renewed at or after the commencement date and contracts that are varied after that date). In addition, remedies are also being introduced to prevent a party from including similar terms in future contracts. Such remedies include that an affected party or regulator can seek orders to prevent, reduce, or redress loss or damage that is likely to be caused to any person by the
declared unfair term. This is wider in scope than the current provision which only allows for the affected party to seek orders to prevent, reduce, or redress loss or damage that has or is likely to occur on reliance on the unfair term.
These changes stand to impact and affect most Australian businesses regardless of their size or the industry in which they operate. Standard form contracts are almost ubiquitous and so it is likely that it is something utilised by your business in some capacity.
Small businesses will be impacted both as purchasers and as suppliers of goods and services so it is critical that small businesses review their own standard form contracts to determine whether any UCTs are present.
Palisade Corporate can assist all businesses in determining whether their standard form contracts contain any UCTs. We can also review any standard form contracts given to you by your suppliers to determine and advise whether any UCTs are present and whether they fall foul of the prohibitions.
In light of these vast and sweeping amendments and the reforms to come, businesses should ensure that compliance with the CCA, ACL and, if applicable, the ASIC Act become or remain a key priority.