The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (the Act) is now in force (as of 9 November 2023) and amends existing unfair contract terms laws within the Competition and Consumer Act 2010 (CCA)and the Australian Securities and Investments Commission Act 2001 (the ASIC Act). The new laws are aimed to better ‘protect consumers and small businesses who have limited bargaining power, expertise, and ability to negotiate or assess standard form contracts’ (ACCC, 2023).
Previously, if a court determined a term to be ‘unfair’ they could only deem the term as void and unenforceable. However, these new laws make unfair contract terms illegal, and impose additional penalties for their use in standard form contracts, while also exposing a wider range of businesses to these major penalties by widening the scope of a ‘small business contract.’
First key change: New Penalties
Schedule 2 of the Act stipulates that a penalty may be imposed by the courts if a person relies upon or applies an unfair contract term in a standard form contract.
Schedule 2 of the Act stipulates that a penalty may be imposed by the courts if an unfair contract term has been used within a standard form contract on a ‘take it or leave it’ basis.
Both of the above conditions apply to small business and consumer contracts (see more on this below).
The Act has increased the maximum penalty that businesses can be exposed to under ACL and the ASIC Act.
Under Schedule 1 of the Act, the maximum penalty for businesses will increase to the greater of:
- $50M (up from 10M);
- Three times the value of the benefit to the company that is reasonably attributable to the act or omission; or
- Where the value of the benefit cannot be determined, 30% of the corporation’s turnover during the offence period (up from 10% over a 12 month period).
For individuals, the maximum penalty will increase to $2.5M (up from $500,000).
The penalties will apply for contracts, or renewals or variations of existing contracts (including construction contracts) entered into on or after November 2023.
Second Key Change: Widened scope: Small business contract and Standard Form Contracts
Part 3 of the Act also provides protection from unfair contract terms to more small businesses by expanding the definition of a ‘small business contract’.
These changes will make it easier for regulators and the parties to establish that a contract is ‘standard form,’ and therefore impacted by the new regulations. Significantly, a consumer contract is presumed to be a standard form contract unless the business relying on the term proves otherwise. This means that the burden of proof to demonstrate an equal bargaining power has shifted to those issuing the contract.
In the Australian Consumer Law: the definition of a small business contract has been amended so that the regime will apply if one party to the contract is a business that:
- Employs less than 100 people; or
- Has a turnover for the last income year of less than $10M.
Importantly, these changes remove the current financial threshold, meaning that there is no limit on the contract value for the court to find a term unfair. This change has drastically widened the net, and there will be many large contracts captured.
This amendment is significant, because it will affect any businesses who frequently use standard contract templates when conducting business. These changes will also affect any existing contracts that are amended or renewed from 9 November 2023.
Unfair contract terms and typical provisions impacted
A term is unfair if:
- it causes a significant imbalance in the parties’ rights and obligations;
- it is not reasonably necessary to protect the legitimate business interests of the advantaged party; and
- it would cause detriment if it were relied on.
Examples of typical provisions that could be impacted are:
- liquidated damages;
- automatic renewal clauses
- limitation of liability
- time bars
Key Takeaways – Head Contractors & Principals
Businesses which meet these new wider thresholds will now be liable for harsh penalties if they include unfair terms in a standard-form consumer or small business contract from 9 November 2023.
Businesses should review their standard form contracts and remove any unfair contract terms. This includes contracts that are amended or renewed after this 9 November 2023.
The discretion of the court is wide – they have lots of freedom to include any matter that it thinks is relevant when considering whether a term is unfair.
Key Takeaways – Subcontractors, Consultants, and Suppliers (who are a “Small Business”)
Your negotiating power has shifted.
You can now push back on ‘take it or leave it’ contracts which may have previously been the industry standard.
Review any current contracts that may be up for renewal and educate yourself on what is an unfair contract term.
Have questions or need advice? Contact the team at Construction Legal.