Major changes to Competition and Consumer Act – prohibition of unfair contract terms and increased penalties for breach of the Act

On 28 September 2022, the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill) was introduced by the Federal Government. The Bill prohibits unfair contract terms in standard form contracts and introduces penalties for contravention of unfair contract term provisions of the Competition and Consumer Act 2010 (Cth) (Act).  The Bill also increases maximum penalties for other contraventions of the Act.

Unfair contract terms

An unfair contract term is a term that:

  • causes a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • causes financial or other detriment to a consumer or small business if it were relied on.

Currently under the Act, where a Court determines that a term of a standard form contract with a consumer or small business is an unfair contract term, the term may be held to be void but penalties do not apply. If the Bill is passed in its current form, giving effect to or seeking to enforce these unfair terms will be expressly prohibited and may be penalised.  Notably:

  • each unfair contract term contained in a standard form contract will be considered a separate contravention of the Act; and
  • a contract may be determined to be a standard form contract even if a party had an opportunity to negotiate minor changes to the contract.

The Bill also proposes to change the small business definition so that more businesses will fall under the protection from unfair contract terms.  It is proposed that a small business will be defined as a business with either fewer than 100 employees or an annual turnover of less than $10 million.

If a Court finds a contract term in a standard form contract to be unfair, the ACCC will also be able to seek orders to prevent the business from including the same term or one substantially similar in any future standard form consumer or small business contract.

The penalties

Under the Bill, a body corporate in breach of the Act (including the prohibition on unfair contract terms discussed above) may be met with the following maximum penalties:

  • $50 million (previously $10 million);
  • if the Court can determine the value of the benefit obtained from the breach – three times the value of that benefit (unchanged); or
  • if the Court cannot determine the value of the benefit obtained – 30% of the sum of the value of all the supplies that the body corporate and any related body corporate made during the breach turnover period (previously 10% of annual turnover in the 12 months prior to the breach).

The maximum penalty for individuals will be increased from $500,000 to $2.5 million.

What you need to do

The changes concerning unfair contract terms will likely not apply for 12 months after the Bill is given Royal Assent. Businesses should use this time to review and amend their standard form contracts to ensure that their terms are fair and comply with the Act.

More information

If you have any queries or would like further information about this article, please contact:

Kathryn Speed
M: 0408 446 013

Luke Phillips
T: (03) 6235 5184

Published: 13 October 2022

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