The Australian Consumer Law (‘ACL’) has now changed, meaning that businesses with standard contracts will soon be at risk of incurring penalties in excess of $50 million for each unfair contract term within their standard form agreements.
What changes are being made to the ACL?
The definition of small business contracts in section 23(4) will be amended to apply to a business that has either:
- fewer than 100 employees; or
- an annual turnover of less than $10 million (calculated on the business’ last income year).
Casual employees are not counted unless employed on a regular and systemic basis, and part-time employees are counted as a fraction of a full-time employee.
The change to this definition potentially expands the scope of businesses that would be captured under this section, as it would no longer be confined to businesses with fewer than 20 employees.
The other change concerns the penalties being introduced. Presently, if a contract contains an unfair contract term, the only consequence is that the term itself is voided.
Under the changes, for a body corporate, each contravention of section 23 can result in fines of:
- $50 million; or
- 3 x the value of the benefit gained under the contract; or
- if the value of the benefit at (b) cannot be determined, then 30% of the adjusted turnover of the business during the breach period,
whichever is greater.
For individuals, the penalty is $2,500,000 for each contravention.
These new penalties will also apply to the existing penalties for other infringements under the ACL.
This means that if a contract has several unfair contract terms, then each of those terms would be a separate contravention under the amendments. This can result in crippling penalties for a business.
In addition to this penalty, the court has the ability to order redress loss or damage caused by the unfair contract term.
Examples of unfair contract terms
Holman Webb Partner Nick Maley’s recent article ACCC Prosecutions in relation to Unfair Contracts discussed the decision of Australian Competition and Consumer Commission v Fuji Film & Business Innovation Australia Pty Ltd (2022) FCA 928.
In the judgement, Stewart J described examples of unfair terms that were not negotiable between the parties:
- allowing unilateral variation by Fuji of the price charged;
- providing for automatic renewal of the contract, unless notice was given by the customer within a certain period of time;
- additional contractual terms incorporated by reference to extraneous documents, which were not easily accessible by the customer;
- limitation of Fuji’s liability for any delay in supplying equipment;
- obligation on the customer to pay all costs Fuji incurs in exercising its rights, including legal costs on a full indemnity basis where there was no corresponding right for the consumer;
- a warranty given by the customer that they had read all the various material, including those documents and clauses incorporated by reference to extraneous documents;
- significant caps and reduction of Fuji’s liability and removal of liability for consequential loss;
- indemnification of Fuji for loss and damage, even subject to exclusions for wear and tear and Fuji’s own negligence;
- an entitlement of Fuji to suspend provision of services but still require the customer to pay for those services which are suspended;
- rights of Fuji to terminate the contract immediately without any corresponding right for the customer;
- obligation for balloon payments by the customer when terminated by Fuji;
- obligation at the end of the minimum term of the contract to either return the equipment or pay any shortfall;
- provisions in respect to the return of the documents irrevocably binding the consumer, but Fuji is not bound until it indicates it has adequate stock; and
- a right to Fuji to invoice even if goods have not yet been provided.
It is important that businesses consider whether their contracts contain similar provisions to those listed above, as these could be considered to be unfair contract terms for the purposes of the ACL.
Holman Webb’s Business, Corporate and Commercial Group can assist you to ensure that your contracts do not contain any unfair contract terms.
What you should do
The first thing you should do is check the existing terms and conditions of your business’ contracts and seek professional advice regarding whether changes are needed.
The changes do not take effect until 12 months after the royal assent is given to the Bill amending the ACL. The royal assent was given on 9 November 2022, so the changes will come into effect on 9 November 2023.
In this interim period, it is critical that businesses ensure that their contracts do not contain terms that would infringe on the unfair contract terms regime in the ACL.
It is important that you review your agreements to ensure that its terms are compliant with the legislation. If you require assistance with the review of your contracts, or to discuss these incoming changes, please do not hesitate to get in touch with Holman Webb’s Business, Corporate and Commercial Group today.