In the coming weeks, Australia will see changes to the Australian Consumer Law come into effect. The changes will prohibit businesses from proposing, using, or relying on unfair contract terms in their contracts with the introduction of substantial new penalties.
The changes will also extend the threshold for small business contracts to now apply to small businesses that employ fewer than 100 staff or have an annual turnover of less than $10 million, so what once may not have applied to your business may now need to be considered.
The new penalties
The maximum financial penalties for businesses under the new unfair contract terms law are the greatest of:
- $50,000,000;
- three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this; or
- if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
The changes will apply to:
- Standard form contracts made or renewed on or after 9 November 2023.
- A term of a contract that is varied or added on or after 9 November 2023.
However, where the term of a contract is varied or a new term is added to a contract on or after 9 November 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.
What to look out for
The Australian Competition and Consumer Commission have released the following tips for businesses to consider when reviewing their contracts:
- Consider both points of view: if you think a term is necessary to protect your business’s legitimate interest, consider the term from the other party’s point of view.
- Include counter-balancing terms: check that your contract has appropriate counter-balancing terms. For example, if you consider that your business reasonably needs the ability to unilaterally change the product or service being provided under the contract, does the contract also allow your customers to exit the contract without penalty when this occurs?
- Avoid broad terms: don’t have terms that are as broad as possible. Make sure terms are only as broad as reasonably necessary to protect your business’s legitimate interests.
- Meet your obligations under the Australian Consumer Law: don’t have terms that seek to avoid your business’s obligations under the Australian Consumer Law. For example, don’t include terms that seek to limit your customers’ consumer guarantee rights or terms that seek to disclaim any representations your business may have made outside of the contract.
- Be clear: Use clear and simple language in your contracts.
- Be transparent: ensure key terms are clearly drawn to the attention of your customers during the sign-up process and any renewal process.
While some of these changes won’t apply to your business contracts until they are renewed, or until a new contract is entered into, the Australian Competition and Consumer Commission recommend businesses should be proactive in reviewing their contracts, particularly standard form contracts as soon as possible.
For more information, we recommend visiting the Australian Competition and Consumer Commission’s website or contacting our Commercial Law Team for assistance.
Need Commercial Law Advice? Contact Us
The Commercial Law Team at Hede Byrne and Hall offers a wealth of experience in dealing with commercial issues, with our lawyers operating across our Toowoomba, Warwick and Roma Offices.
Please don’t hesitate to reach out to us if you think we may be able to assist you with your commercial law matters today or in the future.
