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A change to contract law you might not be away of but need to be. It is essential to understand the unfair contract terms (UCT) regime and how it affects your rights and responsibilities. Otherwise, you may face serious consequences.
In November last year, the Federal Government changed the UCT regime by expanding the small business threshold and introducing financial penalties for contravening the UCT regime. The penalties are significant, with the maximum penalties being the greater of $50 million, 30% of adjusted revenue or 3x the value of the benefit of the UCT (if it can be determined) for a body corporate and $2.5 million for individuals.
While the changes to the UCT regime only come into effect on 9 November 2023, it’s important to start reviewing your standard form consumer and business contracts now for UCTs.
Who do the changes affect?
From 9 November 2023, the UCT protections will apply to a small business contract if one party is a business that:
- employs fewer than 100 people; or
- has a turnover for the last income year of less than $10 million.
What do you need to do?
- If you haven’t already done so, review all consumer and standard form contracts immediately; and
- amend or remove UCTs from these contracts. For example, if you have a clause that allows you to unilaterally terminate the contract for convenience, or a clause that limits your liability (but not the customer’s), consider removing these clauses or making them mutual.
What Makes a Contract Term Unfair?
The definition of an unfair contract term remains unchanged. As a reminder, a contract term will be ‘unfair’ if it:
- causes a significant imbalance in the rights and obligations of the parties;
- is not reasonably necessary to protect the legitimate interests of the business; and
- causes detriment to one party if the other party seeks to rely on it.
Further, this may include terms that enable one party (and not the other) to:
- avoid or limit their obligations under the contract;
- terminate the contract;
- penalise the other party for breaching or terminating the contract; or
- vary the terms of the contract.
What is a Standard Form Contract?
Australian Consumer Law (ACL) does not specifically define ‘standard form’. However, it does provide a framework of factors for courts to consider when determining whether a standard form contract exists. These factors include where:
- one party possesses the bargaining power;
- one party prepares the contract without a discussion between the parties;
- the other party must accept or reject terms on a ‘take it or leave it basis’; or
- the other party does not have an adequate opportunity to negotiate the terms of the contract.
Additionally, some recognisable examples of standard form contracts include:
- mobile phone plans;
- airline sales terms and conditions;
- gym memberships;
- information technology licences; and
- online contracts where the party is required to tick an acceptance box to accept terms and conditions.
Alexandra Perry
Practice Leader
LegalVision.com.au
Practice Leader
LegalVision.com.au
