Remove Unfair Contract Terms before 9 November 2023

From 9 November 2023, changes to the Australian Consumer Law (ACL) will impose heavy penalties on businesses proposing, using or relying on unfair contract terms in standard form contracts with consumers and small businesses. Businesses need to review their standard form contracts now and remove any unfair contract terms to avoid substantial penalties.

Currently, if a term of a standard form contract is found to be unfair, the Court can declare the term void. From 9 November 2023, businesses (including sole traders) can also face substantial penalties for proposing, using or relying on unfair contract terms.

Significant new penalties

There will be a maximum penalty for individuals of $2.5 million for each breach and for corporations the greater of:

  • $50 million; or

  • three times the benefit obtained from the breach; or

  • if the court cannot determine the total value of those benefits, 30% of the corporation's adjusted turnover during the breach turnover period.

What are Standard Form Contracts?

These contracts are usually provided to customers or other businesses on a ‘take it or leave it’ basis, ie, there is little or no negotiation on the terms of the contract. Some examples may include trading terms (including online sale terms), software licence agreements, loan agreements and franchise agreements.

What terms are considered unfair?

Under the ACL, a term of a relevant standard form contract may be unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

  • it would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

The types of terms that may be unfair, depending on the particular circumstances, include:

  • automatic renewal clauses with no notice;

  • imbalanced termination rights eg one party can terminate the contract for convenience whereas the other party does not have that same right;

  • one party has the right to unilaterally vary the contract terms (eg change service levels);

  • unfair payment terms eg unilateral right of one party to increase fees without the consent of the other party;

  • wide or one-sided indemnities.

The changes to the law also widen the definition of 'small business', so the unfair contract laws will apply to a much larger pool of contracts with other businesses.

All businesses should review their standard form contracts now and implement any changes to remove unfair contract terms prior to 9 November 2023.

If you or your clients need assistance with reviewing standard form contracts, please contact Gena Kawaguchi or Simon Griesz.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

 

contact

Simon Griesz

Partner
E swg@bwslawyers.com.au
P 02 9394 1082

Gena Kawaguchi

Partner
E glk@bwslawyers.com.au
P 02 9394 1075

 
Corporate & Commercial, Compliance & CorporateLauren CantSimon Griesz, Gena Kawaguchi