Amendments to the Australian Consumer Law

The Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2011 (Cth) have been amended to further provide consumers with protections from the use of unfair contract terms in standard form contracts. These protections are enhanced by bringing in civil penalties for the use and reliance upon unfair contract terms. The changes also broaden the scope of business impacted by the restrictions on unfair contract terms.

Within the building and construction industry, the use of standard form contracts can be extensive. You may have come across standard form contracts such as those between head contractors and sub-contractors, leasing arrangements, loan agreement, domestic building contracts and commercial design and construct contracts.

Application of Unfair Contract Terms

Historically, protections against unfair contract terms were limited to contracts where at least one party to the contract was a business, employing less than twenty people and the upfront payable cost of the contract did not exceed a monetary threshold.

Since the amendments, unfair contract term protections will apply where at least one party to the contract is a business, employing 100 or less people or has an annual turnover for the last income year of less than $10,000,000.00.

These amendments have broadened the class of businesses that must comply with the unfair contract protections. Therefore, for small businesses owners, it is important to consider whether you now fall within the scope of businesses that must comply with the protections. Failure to comply will now result in civil penalties.

Standard Form Contracts

Unfair contract term protections also apply to standard form contracts. Within the building and construction industry, the use of standard form contracts is prevalent. You may already use or have come across standard form contracts such as the Master Builders and QBCC pro forma contracts. Where a consumer is alleging a contract is a standard form contract, it will be presumed to be a standard form contract unless you can prove otherwise.

Indications that a contract is a standard form contract will include (but are not limited to):

1. if the contract was offered on a ‘take it or leave it’ basis;
2. if there has been repeated use of the same contract offered and entered on the same ro substantially similar terms;
3. the terms were not altered to the individual parties’ circumstances;
4. where one party had limited or no opportunity for negotiating terms;
5. one party was only permitted to negotiate on a set of terms for example from a range of options determine by the other party; and
6. one party was only able to negotiate on minor or insubstantial terms.

What is an unfair contract term?

An unfair contract term is one which would cause a significant imbalance in the parties’ rights and obligations arising under the contract that are not reasonably necessary to protect the legitimate interests of the party intending to rely on the term and would cause detriment to a party if the term was relied upon.

Only a court can determine that a term is an unfair contract term and there will be a consideration of all the facts and circumstances in the matter. This means that whilst a term may be deemed an unfair contract term in one instance, it may not be an unfair contract term in another.

The court will also consider whether the term was transparent. This mean, if you attempt to hide terms in fine print or are written in complex legal jargon, the court may determine it was not transparent, potentially leading to a finding that the term was an unfair contract term.

The Australian Securities and Investment Commission have provided some examples of unfair contract terms, these include:

1. unilateral variation clauses – only permitting one party to vary the terms after signing the contract;
2. indemnity clauses – where one party must pay all costs and expenses incurred by the other exercising their rights on a full indemnity basis and not including a requirement for the party to mitigate their losses;
3. liability limitation clauses – where the term significantly reduces, limits or caps a parties liability;
4. disproportionate termination clauses – where one party is permitted a wide scope of termination rights compared to the other party;
5. automatic renewal clauses – where the contract is automatically renewed without notice to the other party; and
6. cash settlement based on cost to the insurer – where a term allows the insurer to settle a claim based on the cost the insurer would incur to rebuild or repair a home as opposed to the actual cost for a homeowner to rebuild or make repairs.

Terms that will not be Unfair Contract Terms

There are some set terms which will not fall into the category of an unfair contract term, even though they may be used on a recurring basis across many previously entered contracts. These include terms that:

1. define the subject matter of the contract – for example: the product or service offered under the contract;
2. set the upfront payable price;
3. are required by or expressly permitted by law;
4. are taken to be included by operation of a law – however, if the term goes beyond what is required by law, the unfair contract term protections will apply; and
5. result in other contract terms being included because of the operation of another law.

Penalties for Use and Reliance on Unfair Contract Terms

If a court determines that a term unfair, the term will be found void and the contract treated and read as if the term never existed. If the contract can still operate without the use of that term, the parties will still be bound by the other terms and obligations under the contract.

Further, there are now financial penalties that will be imposed on businesses where an unfair contract term was proposed, applied or relied upon. Where there were multiple unfair contract terms within the one contract, each term will attract a separate penalty. These penalties for businesses will be the greatest of the following:

1. $50,000,000.00;
2. three times the value of the ‘reasonably attributable’ benefit obtained from the conduct (if the court can determine this);
3. if a court cannot determine the benefit, 30% of adjusted turnover during the breach period.

When do these changes apply from?

The protections and changes that have been brought apply to consumer contracts and small business contracts:

1. entered into on or after 9 November 2023;
2. to existing contracts that have been renewed on or after 9 November 2023; and
3. existing contracts that have been varied on or after 9 November 2023.

We recommend that you review your contracts and consider whether your business will be required to comply with the unfair contract term protections and if so, whether your contracts are currently compliant.

For a more in-depth conversation about the changes and requirements under the new regime, please contact our office.