By Frazer Hunt, Partner & Nicholas Cumming, Law Graduate
On 6 November 2020, the Consumer Affairs Ministers of various states and territories and the Commonwealth agreed to expand the existing unfair contract protections under the Australian Consumer Law (ACL).
The proposed reforms are as follows:
- Unfair contracts terms to be deemed ‘unlawful’ under the ACL, giving Courts the power to impose civil penalties to unfair contract terms; and
- Expansion of the eligibility of ‘small businesses’ for unfair contract protections under the
Unfair Contracts Terms as Unlawful
Under the current regime, a term of a standard form, small business, and/or consumer contract can be determined by a court to be ‘unfair’, and thus void, rendering the term inapplicable to the agreement between the parties.
The proposed reform to deem unfair contracts terms as ‘unlawful’, will allow courts to impose a civil pecuniary penalty against the offending party. The amount of this penalty would be determined on the circumstances of each individual case.
This is a significant development if enacted, as offending parties may not be able to rely on terms of a contract if determined unfair by a court, but also be financially penalised.
Expansion of Small Business
Under the current unfair contract regime, small businesses may be afforded protections if their ‘standard form contract’ was entered into or renewed after 12 November 2016, in which:
- The contract is for supply of goods or services;
- One of the contractual parties has less than 20 employees, including casual employees employed on a regular basis; and
- The upfront price payable under the contract is no more than $300,000, or $1 million if the term of the contract is for more than 12 months, not including any interest, fees or charges that may be incurred.
The proposed reform will increase this threshold to require that one of the contractual parties have less than 100 employees, and/or less than $10 million annual turnover. Thus, under these proposed reforms the scope of the ACL will be significantly expanded, allowing up to 99% of businesses to be able to rely upon the protections.
What Needs to be Done?
With the evolving scope and enforcement of the ACL, small businesses and big businesses alike need to be prepared for the proposed reforms and we strongly urge all businesses with standard form contracts to check the wording of their terms and conditions. We anticipate with the greater eligibility of small businesses under the ACL, it is inevitable that there will be more challenges to terms that limit or exclude liabilities in standard form contracts.
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