ACCC – Changes to
Unfair Contract Terms
Everything is changing….
From 9 November 2023 Australia’s unfair contract terms regime will apply to a much, much larger pool of contracts than it has in the past. This shift will ensure that consumers and small businesses retain a robust level of protection when entering into new or varied standard form contracts. Businesses that might previously have been comfortable that the regime did not affect them, now need to take notice. At the same time, the regime now attracts significantly increased penalties for non-compliance than it has in the past.
If you are a business that uses any kind of template agreement you should assess who it is that is entering the contract. If you a providing this contract to a consumer, a business with less than 100 employees or a business that earns less than $10 million in annual turnover, these changes may affect you.
Standard form contracts are common and often used in every day terms and conditions agreements, template non-disclosure agreements, template lease agreements, template purchase order/supply terms and conditions, template guarantees and template agency or franchise agreements.
Terms that will no longer be allowed in standard form contracts include:
- Terms that allow one party (but not the other) to avoid or limit their responsibilities;
- Terms that allow one party (but not the other) to end the contract;
- Terms that penalize one party (but not the other) from breach or ending the contract;
- Terms that impose excessive exit fees;
- Terms that cause an imbalance to the rights and obligations of the parties;
- Terms regarding broad indemnification; and
- Terms imposing automatic renewal terms.
Consideration must also be given to the transparency of the terms and the agreement as a whole.
What are the risks?
Failure to comply with these new changes may result in heaty financial penalties.
Businesses can face up to a $50 million penalty or a penalty of three times the value of the benefit obtained. While individuals may incur a penalty of up to $2.5 million for unfair contract terms.
Ignoring this regime may have a significant impact on the model of revenue for your business.
To avoid these penalties, you should consider:
- Are these contracts used for consumers or small businesses? (this is likely)
- How many times have you used your contracts?
- Do your current contracts need varying?
- Will you be using these contracts in the future?
- Do the terms provide any kind of disparity relating to obligations, financial or otherwise?
- Consider the types of terms stated above.
Recommendations/what should my business do now?
For each precedent contract used in a business, we recommend asking:
- Is this a ‘standard form contract’, taking into account the new assessment factors proposed by the new regime.
- Will this contract be used with consumers or with customers or suppliers that have fewer than 100 employees or that have an annual turnover of less than $10 million?
- Does it contain any unfair contract terms? Our notes above provides a starting point but be aware this is a fact-based assessment that must be performed on a case-by-case basis.
If you have any concerns about what these changes mean for your business and the contracts or agreements that you often use, please contact the CXT Legal team.
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We’d love to help you and your business realise all the benefits of carefully planned legal support.
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