Unfair Contract Terms Penalties And The Updated UCT Regime: What Your Business Needs To Know

The penalties for competition and consumer law breaches in Australia have increased significantly, and businesses that have not yet reviewed their standard form contracts for compliance are now operating at real financial risk. The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 commenced on 10 November 2022, bringing with it a dramatic increase in the maximum penalties applicable to corporations and individuals alike.

Under the updated regime, the maximum penalty for a corporation that breaches the Competition and Consumer Act 2010 (CCA) is now $50 million, up from the previous maximum of $10 million. For individuals, the maximum penalty has risen from $500,000 to $2.5 million, an increase of 500%. The ACCC unfair contract terms enforcement powers were also significantly strengthened, with pecuniary penalties now applying to unfair contract terms for the first time. Businesses that have not yet audited their contracts against these new obligations should act promptly.

Why the Penalties Were Increased

The increased penalties are intended to deter businesses from engaging in anticompetitive conduct and to protect consumers from unfair business practices.

In addition to the increase, the unfair contracts regime in NSW has been expanded to limit the use of “standard term” arrangements that negatively and disproportionately target consumers and small business owners. This means that businesses are now more likely to be held liable for unfair contract terms and may face financial penalties under the new legislation.

With the introduction of pecuniary penalties, each unfair term in a contract attracts a separate contravention and punishment. Within the second reading speech, these new penalties were justified as promoting competition and better corporate behaviour.

What Is an Unfair Contract Term?

An unfair contract term is a term that is so one-sided that it would cause a significant imbalance in the parties’ rights and obligations. Examples include terms that:

• Exclude or limit a consumer’s legal rights
• Require a consumer to pay excessive fees
• Make it difficult for a consumer to cancel a contract

If a business uses an unfair contract term, they may be liable to a consumer for damages. The increased penalties and expanded unfair contracts regime mean that businesses need to be more careful about their compliance with competition and consumer law by reviewing their contracts and ensuring that they do not contain any flagged terms.

Under the updated regime, the penalty for breach of contract terms deemed unfair is no longer limited to voiding the term. It now extends to significant financial penalties for the business that included or relied on that term, making proactive contract review more important than ever.

Key Reforms to the Unfair Contract Terms Legislation

The UCT legislation introduced several significant reforms beyond the penalty increases themselves. The new legislation seeks to deter the use of “standard term” arrangements that can proliferate unfair contracts. Courts can now declare an unfair term contained in standard form contracts as invalid, and the principal reforms are as follows.

Pecuniary penalties for unfair contract terms

The previous law did not attract pecuniary penalties for unfair contract terms, simply deeming the unfair term as void. Under the updated legislation, penalties now apply to any individual or company who creates a contract that contains, relies upon or appears to rely upon an unfair contract term.

Classification of standard form contracts

Courts are now required to consider whether parties have made other contracts in the same or similar terms and, if so, the number of contracts, in order to conclude whether a contract is in standard form. The legislation also acknowledges standard contracts where:

• There is an opportunity for a party to negotiate changes to terms that are minor or insubstantial in effect
• An opportunity for a party to select a term from a range of options determined by other parties
• An opportunity for a party to another contract to negotiate terms of the other contract

Small business contract expansion

Previously, small business contracts were defined by the requirement of one party (the small business) to have fewer than 20 employees with an upfront price payable of less than $300,000. The new definition, which commenced in November 2023, now covers all contracts where at least one party has fewer than 100 employees and their last income year (ending at or before the contract is made) had less than $10 million in turnover.

The unfair contract terms penalties are one of two alternate remedies now in force. A court may also impose an order preventing a party from including a term in any relevant contract in the future that is the same, or substantially similar in effect, to a term declared unfair. This ensures corporate compliance with court orders extends beyond the individual contract in question.

Practical Steps for Business Owners

If you are a business owner, there are a few things you can do to ensure compliance with competition and consumer law:

• Review your contracts and ensure that they do not contain any unfair terms
• Be aware of the new penalties and the potential consequences of non-compliance
• Get advice from a lawyer if you are unsure about any aspect of competition and consumer law

By following these steps, you can help to protect your business from the risk of a costly penalty.

For more information on ACCC unfair contract terms enforcement and your compliance obligations, please visit the Australian Competition and Consumer Commission (ACCC) and NSW Fair Trading.

How Coleman Greig’s Commercial Advice Team Can Help

Understanding your obligations under the UCT legislation is one thing. Identifying exactly where your existing contracts may expose you to unfair contract terms penalties is another. Coleman Greig’s Commercial Advice team works with businesses across a range of industries to manage this risk practically and efficiently.

Specifically, we can assist with:

Contract review and compliance audit: We can review your existing standard form contracts to identify terms that may be captured by the UCT legislation and advise on the amendments needed to achieve compliance before the ACCC or a court takes action. This is the most effective first step for any business that has not yet reviewed its contracts against the updated regime.

Contract drafting and redrafting: Where contracts need to be restructured or redrafted to remove unfair terms, our team can prepare updated versions that balance your commercial objectives with your legal obligations. This includes reviewing template agreements, terms and conditions, supplier contracts, and any other documents used repeatedly with consumers or small businesses.

Penalty exposure assessment: If you are uncertain about your exposure to unfair contract terms penalties under the current regime, we can provide a practical assessment of the risk profile of your existing contracts and recommend a course of action that is proportionate to the issues identified.

Regulatory response and representation: If your business is subject to an ACCC investigation or court proceedings in relation to unfair contract terms, our competition and consumer law team can provide strategic advice and representation throughout the process.

Ongoing compliance support: We can assist businesses in building internal processes to ensure that new contracts and template updates are reviewed for UCT compliance before they are deployed, reducing the risk of inadvertent contravention as your business grows and your contract suite evolves.