From 9 November 2023, changes to the Australian Consumer Law will ban proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses.
Currently, a Court can only declare specific terms of a contract unfair and therefore void but they are not prohibited, and the Court cannot impose any penalties on businesses that include them in standard form contracts. The changes will allow Courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts.
The maximum financial penalties for businesses under the new unfair contract terms law are the greater of:
- $50,000,000;
- three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
- if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
The changes apply to:
- standard form contracts made or renewed on or after 9 November 2023.
- a term of a standard form contract that is varied or added on or after 9 November 2023.
Where a term of a contract is varied or added on or after 9 November 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.
The definition of a small business contract will also change. The protections will cover businesses with 100 or fewer employees or that make less than $10 million in annual turnover and will apply irrespective of the value of the contract.
Businesses should review their own standard form contracts and remove or amend any unfair contract terms before the new laws and penalties take effect.
Businesses may wish to obtain independent legal advice if they have specific questions about how the law applies in their specific situation. If there is doubt about whether a contract term would be considered unfair, businesses should consider removing or changing the term.
Tips for businesses to consider when reviewing their contracts
- Consider both points of view: if you think a term is necessary to protect your business’s legitimate interest, consider the term from the other party’s point of view.
- Include counter-balancing terms: check that your contract has appropriate counter-balancing terms.
- For example, if you consider that your business reasonably needs the ability to unilaterally change the product or service being provided under the contract, does the contract also allow your customers to exit the contract without penalty when this occurs?
- Avoid broad terms: don’t have terms that are as broad as possible. Make sure terms are only as broad as reasonably necessary to protect your business’s legitimate interests.
- Meet your obligations under the Australian Consumer Law: don’t have terms that seek to avoid your business’s obligations under the Australian Consumer Law.
- For example, don’t include terms that seek to limit your customers’ consumer guarantees rights, or terms that seek to disclaim any representations your business may have made outside of the contract.
- Be clear: use clear and simple language in your contracts, to avoid any misinterpretation or misunderstandings.
- Be transparent: ensure key terms are clearly drawn to the attention of your customers during the sign-up process, and any renewal process.
Visit the Unfair Contract Terms page for more information