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Higher penalties for anti-competitive conduct and expanded regulation of unfair contract terms
The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act) should receive Royal Assent this week and become law.
Australia | Publication | January 2023
More business and more contracts will qualify for the unfair contract terms regime and, if contravened, significant penalties will be imposed.
On 9 November 2022 the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Act) was assented to and became law. The Act gives effect to the Albanese Labor Government’s policy to expand the unfair contract terms regime under the Australian Consumer Law (ACL). The reforms to the unfair contract terms regime will commence on 9 November 2023.
The key provision relevant to these reforms is section 23 of the ACL, which provides that a term of a consumer contract or small business contract is void if the term is unfair and the contract is a standard form contract.
The reforms broaden the scope of the regime to apply to more small businesses, expand the definition of a “standard form contract”, and greatly increase the consequences for including an unfair term in a “small business contract”. The reforms will apply to contracts made on or after 9 November 2023, existing contracts renewed on or after that date, and terms of existing contracts that are varied after that date.
The laws apply to small business contracts, which are contracts for the supply of goods or services, or the sale of a grant of an interest in land, where at least one party is a small business. The reforms broaden the definition of “small business”:
Current law | Reform – from 9 November 2023 |
Both of the following must apply:
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One or both of the following apply to one of the parties:
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Another change relates to how a court decides whether a contract is a “standard form contract”. Under the reforms, in addition to the matters a court must already take into account in deciding whether a contract is a standard form contract, a court must also take into account whether one of the parties has made another contract, in the same or substantially similar terms; and, if so, how many such contracts that party has made.
The reforms also provide that a court may decide that a contract is a standard form contract despite there being an opportunity for a party to do any of the following:
The concept of “standard form contracts” is not limited to unamended contracts produced by industry associations such as Standards Australia, but is likely to include any amended or bespoke form of contract that is prepared by one party and presented to the other party on a take it or leave it basis, or where the other party is not given an effective opportunity to negotiate the contract terms.
Currently a contractual term found to be unfair is void, but there are no pecuniary penalties for the party trying to enforce the term. Under the reforms, in addition to the term being void, substantial pecuniary penalties will apply to a person who proposes, applies or relies on an unfair term.
For a corporation, the potential maximum penalty for each unfair term will be the greater of:
An individual who has aided, abetted, counselled or procured or been knowingly concerned in proposing, applying or relying on an unfair term may also be exposed to a penalty of up to AUD $2.5 million for each unfair term. Therefore, company officers and senior managers will also be at risk when the reforms come into force.
The court will have a range of other remedies available, including making declaratory orders against the advantaged party to redress, prevent or reduce loss or damage to the other party (for example, varying the contract).
Under the ACL, a term of a small business contract is unfair if it:
In deciding whether a term is unfair a court must take into account the extent to which the term is transparent and the contract as a whole. The ACL provides a list of examples of provisions that may be unfair.1
In August 2022, the Federal Court handed down judgment in Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 928. Some of the unfair terms identified in the judgment that are sometimes seen in construction industry contracts include automatic renewals clauses, unilateral variation clauses, and uneven limitation of liability, assignment and termination regimes. “No reliance” clauses, requiring agreement by one party that it has read extraneous documents not provided by the other party and excluding liability for other pre-contractual representations, were also found to be unfair in this case.
Some other types of clauses commonly seen in construction industry contracts which may be considered unfair (depending on the contract as a whole) are unreasonable time bars, broad rights of recourse to performance security and termination for convenience clauses without appropriate compensation.
Compliance with the unfair contract terms provisions is challenging, because many clauses commonly used in construction industry contracts could be considered unfair by the Australian Competition and Consumer Commission (ACCC). However, a risk mitigation strategy can greatly reduce the risk of the ACCC deciding to take action in relation to a contract term. This strategy may include reviewing relevant contracts, obtaining expert legal advice on potentially affected contract terms, and recording the outcomes of the review process, such as amendments made to some terms and reasons for decisions made not to amend other terms.
During the grace period before commencement of the reforms, we recommend that construction industry participants consider:
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