Unfair Contract Terms Regime: What are the New Penalties for Australian Businesses?

Late 2023 saw the significant expansion of Australia’s ‘unfair contract terms’ (UCT) regime, as the changes to the competition provisions of the Competition and Consumer Act 2010 (Cth) commenced. These changes are particularly relevant to businesses in industries where it is common practice to provide products or services on standard terms, such as suppliers of software and SaaS solutions, and sellers of consumer goods.

What is the UCT regime legislation?

Under the updated UCT regime, companies using ‘unfair contract terms’ in any standard form contracts which are made, renewed or varied from 10 November 2023 onwards can now be fined up to the greater of:

• $50 million;
• three times the value of the “reasonably attributable” benefit obtained from the conduct; or
• if a court cannot determine the benefit, 30% of the company’s adjusted turnover during the breach period.

Individuals (including company directors) doing the same thing can receive fines of up to $2.5 million.

These penalties are a notable departure from the previous regime. Prior to 10 November 2023, the consequence of including an unfair term in a standard form contract was that the term would be declared void and unenforceable by a court. The rest of the contract would remain binding if it could operate without the unfair term, and no financial penalty applied.

Three questions to ask to check if your contracts are compliant with the UCT regime

Given the introduction of substantial financial penalties, all businesses should be reviewing their contracts for compliance with the UCT regime, with a focus on the following questions:

1. Is the contract a ‘consumer contract’ or a ‘small business contract’?

Is the contract used to supply goods or services to individuals, where the goods or services are primarily for personal, domestic or household use or consumption?

or

Does either party to the contract have a business with less than 100 full-time equivalent employees?

or

Does either party have an annual turnover of less than $10 million?

2. If the answer to any of the questions above is ‘yes’, then the business should next consider: is the contract a ‘standard form contract’?

There is no clear legal test which defines a ‘standard form contract’.  Relevant considerations include whether:

• • the contract has been pre-prepared;
  • the contract is usually offered on a ‘take-it-or-leave-it’ basis; and
  • one party has most of the bargaining power.

Minor or insubstantial amendments do not prevent a contract from being a ‘standard form contract’, nor will the fact that it may have previously been heavily negotiated by one or more entities.

3. If the contract is a ‘standard form contract’, is any term in it ‘unfair’?

A term will be ‘unfair’ if it:

• • would significantly imbalance the parties’ rights and obligations;
  • is not reasonably necessary to protect the advantaged party; and
  • would cause a detriment to the other party.

Examples of clauses that a court has held, or the Australian Competition and Consumer Commission (ACCC) has indicated may be, ‘unfair’ include terms that:

• • allow or grant one party disproportionate rights to:
    • terminate the agreement;
    • limit its liability;
    • benefit from a ‘force majeure’ clause;

• • allow a party to:
    • unilaterally change the quantity ordered;
    • unilaterally vary contract terms or a party’s rights or obligations;
    • amend documents attached to the contract (where the amendment impacts a party’s rights or obligations);

• • automatically renew the contract unless a party provides notice;

• • impose liability on a party without an element of fault;

• • apply to one party only, or primarily, to:
    • prevent them from disparaging the other party;
    • limit their ability to sue the other party;
    • impose excessive termination fees; or
    • impose penalties.

How do these changes affect you?

If you issue standard form contracts to consumers or small businesses, you should review these contracts and consider whether any of their terms meet the ‘unfair’ test. If so, these terms should be amended as soon as possible to comply with the updated UCT regime and avoid the new penalties.

Get in touch

If you need assistance navigating the new penalties under the updated UCT Regime, our experienced Intellectual Property team can guide you through the intricacies and help safeguard your business. For more information and a tailored breakdown of the new penalties and what your business needs to review to ensure it is compliant, reach out to Sarah Gilkes, Sophie Bradshaw or Ben Cameron.