Changes to Australia's competition and consumer law mean businesses will now face new and increased penalties for breaches of the Australian Consumer Law (ACL) and the unfair contracts terms law. These changes were introduced late last year and will apply from November 2023 onwards.
Expansion of the small business contract threshold
From November 2023, the unfair contract terms regime which encompass contracts where at least one party:
- made the relevant contract in the course of carrying on a business and at a time when they employed fewer than 100 persons; and/or
- had a turnover for the party's last income year ending at or before the time the contract is made, of less than $10 million.
This means the regime will now apply to a much larger pool of contracts than it has in the past.
The contract also must be for the supply of goods or services or sale of land.
Does it apply to government contracts?
Yes. Under section 2A of the Competition and Consumer Act 2010, the unfair contracts regime binds the Crown but only so far as it carries on a business. This means, for example, government tenders or the provision of government services would not be captured.
Some factors relevant to whether a government entity, department or statutory owned corporation is "carrying on a business" include:
- whether the activity is carried on for profit
- the purpose of the activity, whether it involves the carrying out of a regulatory or governmental function in the interests of the community
- whether the government entity is competing with a private sector supplier.
Unfair contract terms to look out for
Key elements in small business contracts that will be deemed unfair include:
- a term that causes a significant imbalance in the parties' rights and obligations. This is typically seen in a standard form contract which does not provide for review and negotiation of the terms
- a term that is not reasonably necessary to protect the legitimate interests of the advantaged party. This is like a penalty type term (for example, paying a large non-refundable deposit)
- a term that would cause detriment (financial or otherwise) to a party.
Key clauses to review
Contracts should be reviewed with specific attention to:
- indemnities – for example, is the other party required to provide an indemnity for losses outside of their reasonable control? Is the indemnity unilateral? Does it apply to a broad or unclear range of loss?
- limitation of liability – is the clause unilateral? Does it limit liability arising out of risks that would be outside of the disadvantaged party's control?
- termination – does the agreement provide for a unilateral right to terminate the contract? Does it include extensive termination fees? If so, this clause could be deemed unfair
- automatic renewal – does the agreement provide for a renewal without notice?
An agreement containing the above examples could be deemed an unfair contract.
Consideration of 'standard form' contracts
The reforms will apply to standard form contracts entered, renewed or varied from 9 November 2023. When determining whether a contract is a standard form contract, the court will now be required to consider whether one of the parties has made another contract in the same or substantially similar terms and, if so, the number of contracts that party has made.
All contracts for the supply of goods or services or sale of land should be reviewed in light of the new reforms commencing in November 2023. In particular, agreements should be reviewed with consideration of:
- the number of employees within a contracting company (i.e. do they employ more than 100 people? Would it still be captured by the reforms?)
- whether the terms are fair in the context of the contract/transaction as a whole
- the extent to which the terms are transparent
- whether the terms are expressed in reasonably plain language and presented clearly
- whether the parties fairly negotiate the terms (i.e. the contract is not offered as 'take it or leave it').
For more information on how the regime will impact construction contracts, read our previous bulletin here.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.