The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 became law when it received “Royal Assent” on 9 November 2022, with the following ground-breaking effects

  1. the maximum civil penalties available under the Competition and Consumer Act 2010 (Cth) (CCA) for contravening competition and consumer law will be in some cases quintupled; and
  2. ‘unfair contract terms’ (UCTs) will become illegal, and subject to the above penalties.

Increased penalties

Anti-competitive conduct under the CCA and contraventions of the Australian Consumer Law (ACL) that occurs after the date of Royal Assent will be subject to the maximum penalties specified in the below table.

Examples of contraventions of the CCA, include cartel conduct, anti-competitive agreements, misuse of market power, and consumer law contraventions including UCTs and misleading and deceptive conduct.

New Maximum Penalties
Individuals
Corporations
$2.5 million (up from $500,000 under the previous laws) The greater of:

  1. $50 million (up from $10m);
  2. if the court can determine the value of the benefit obtained – three times the value of the benefit (same as under the previous laws); or
  3. if the court cannot determine the value of the benefit – 30% of the adjusted turnover during the breach turnover period for the offence, act or omission (up from 10% of annual turnover in the 12 months prior to the breach).

The ‘breach turnover period‘ is the period from when a business is found to have begun committing a contravention to when it ceased doing so, with a minimum period of 12 months.

 What is a UCT?

A UCT is a term of a standard form consumer or small business contract that is unfair because it:

  1. would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
  2. is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
  3. would cause detriment (financial or otherwise) to a party if the other party was to apply it or rely on it.

It is critical to underline that under the new law:

  1. a person will be prohibited from:
    • making a contract including a UCT (if the UCT was proposed by that person); and
    • applying or relying on (or purporting to apply or rely on) a UCT.
  2. each UCT that is included in a contract will be considered a separate contravention. 

Examples of UCTs

Typical examples of UCTs are those terms that enable one party (but not the other party), to:

  1. unilaterally vary the terms of the contract, including the types of goods/services to be provided, or the fees to be paid;
  2. terminate the contract;
  3. exclude or limit performance of obligations or liability under the contract; and
  4. solely determine whether the contract will be renewed.

For completeness, UCTs do not include terms that deal with the main subject matter of the Contract, that specify the upfront price payable under it, or that are required or expressly permitted by a law of the Commonwealth, or a state or a territory (e.g., permitted under the Franchising Code or another prescribed industry code).

What is a Standard Form Contract?

Standard form contracts include contracts for the supply of goods or services or the sale or grant of an interest in land, which have been prepared by one party and the other party has little or no opportunity to negotiate its terms. Put simply, the contract is offered on a ‘take it or leave it’ basis.

The new law has amended the definition of such contracts to maximise the application of the UCT regime to a much wider range of contracts. In addition to the main differences between the current and new regimes specified in the table below, the new law has entirely removed the contract price requirement, which was one of the main stops precluding the application of the UCT regime to many contracts since its introduction to small businesses in 2016.

Standard Form Contract
Current Law
New Law
  1. At least one of the parties is a small business that employs less than 20 people, including casual employees employed on a regular and systematic basis
  2. the upfront price payable under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months.
 At least one of the parties:

  1. is a business that employs fewer than 100 persons; or
  2. has a turnover for the last income year of less than $10 million.

 
To determine whether a contract is a ‘standard form contract’, a Court must consider several matters including whether a party was:

  1. required to reject or accept the terms of the contract in the form it was presented; or
  2. given an effective opportunity to negotiate the terms of the contract.

Further to the current matters specified in the next column, a Court must consider whether a party has used the same or a similar contract before and the number of times this has been done.

Also, a contract may still satisfy the “standard form” qualification even if the other party has been given an opportunity to:

  1. negotiate changes that are minor or insubstantial in effect; or
  2. select a term from a range of options

 

What will happen if a contract includes a UCT?

Currently, only a court can determine whether a term is ‘unfair’, in which event the term will be void. This means that it will not be binding on the parties. The rest of the contract will continue to bind the parties to the extent it is capable of operating without the unfair term. Under the new regime a UCT is illegal and subject to the above super fines.

What happens if a contract includes a UCT?
Current Law
New Law

If a term of Standard Form Contract is found to be a UCT, the UCT is void.

Although no penalties apply, the ACCC may ask for management programs to be implemented by the offending party, which can be costly.

UCTs will become illegal. A person will be prohibited from:

1.    making a contract including a UCT (if the UCT was proposed by that person)

2.    applying or relying on (or purporting to apply or rely on) a UCT.

 

The pecuniary penalties that apply for the above breaches will be the maximum penalties specified in the first table of this article.

Importantly, each UCT that is included in a contract will be considered as a separate contravention. This means that the penalties that apply for multiple UCTs in one contract could be astronomical, potentially crippling the business at fault.

 

To which contracts will the new UCT regime apply

The above changes to the UCT regime will become effective 12 months after Royal Assent is received (Grace Period – approximately late 2023) and will apply to new contracts only (or existing contracts once they are renewed or varied) made at the end of the Grace Period.

The Explanatory Memorandum to the Bill clarifies that the new UCT regime:

  1. will not apply to existing contracts made before the end of the Grace Period, unless an existing contract is renewed at or after the end of the Grace Period, in which case the new regime will apply on and from the day on which the renewal takes effect; and
  2. will apply to a contract varied after the end of the Grace Period, only to the term or terms that have been varied, on and from the day on which the variation takes effect.

What do you need to do?

Most businesses that use standard form agreements in Australia will be captured by the above changes. We also anticipate that the ACCC will be conducting significant scrutiny on UCTs in standard form contracts shortly after the Grace Period ends, noting that the ACCC has been actively campaigning in favour of these changes over the course of several years.

Therefore, we encourage you use the Grace Period to reach out to our Commercial & Corporate Lawyers so that we can review and update your contracts with the view to reduce the risk of non-compliance with the new law, and therefore potential exposure to the above huge penalties.

Please also note that MV Law will shortly run seminars on the above changes to spread awareness about the new regime. Therefore, watch this space for the relevant dates.

This article was written by Massimo Di Maio, Special Counsel in the Corporate and Commercial Team at MV Law. Feel free to reach out to Massimo if you have any questions about the new law.