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AgriThinking | Rubber hits the road: countdown is on for changes to unfair contract terms laws

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The countdown is on for changes to unfair contract term (UCT) laws which come into effect from 9 November 2023

As we enter the 60 day countdown, the task of reviewing contracts for the newly expanded UCT laws may feel daunting. The ACCC is prioritising compliance in this space, particularly in the agricultural sector, meaning contracts for the products and services supplied, as well as procurement contracts, contractor contracts, website T&Cs (and more), are in the firing line.

Headlines for you to consider

Penalties – unfair terms now risk substantial penalties

Under the current UCT laws, a term found to be unfair is void but there are no immediate financial penalties. This meant that potentially unfair or borderline terms were left in contracts, knowing they would not be relied upon if declared void. The new UCT laws change this position:

  • Unfair terms are prohibited outright, making the proposal, application, or reliance on an unfair term in standard form contracts subject to penalties – that’s potentially up to $50M, 3x the benefit obtained from the conduct or 30% of adjusted turnover.
  • Penalties are per contravention and it’s possible there could be many multiples of contraventions given the laws relate to standard form contracts.

Who’s in the firing line?

The new UCT laws will apply to new contracts made on or after 9 November 2023, and existing contracts but only if they are renewed, varied or added to after 9 November 2023.

The scope of existing UCT laws will also be considerably widened:

  • They will capture contracts where at least one party employs fewer than 100 persons (up from 20 persons) or has an annual turnover of <$10M.
  • There will be no upfront price threshold – where contracts might not have been subject to the UCT laws because of the $300,000 / $1M upfront price threshold, that test will no longer apply in the Australian Consumer Law.
  • Remember, the UCT laws cover not only contracts for products and services supplied, but also procurement contracts under which goods or services are acquired, contractor contracts and website T&Cs, etc.

Changes to UCT laws follow a spate of recent ACCC actions in the agriculture sector, and represent a high priority for future ACCC enforcement

In August 2023, fertiliser suppliers amended allegedly unfair contracts containing a raft of problematic terms following ACCC investigations into farmer complaints. Key terms identified included:

  • Giving suppliers the right to unilaterally vary fertiliser quantities to be delivered to buyers;
  • Supplier termination rights if they believed they would be unable to supply the fertiliser; and
  • Terms restricting buyers’ rights to raise issues about defects with the fertiliser.

These developments also underline the ACCC’s broader enforcement focus on the agricultural sector.

In July 2023, the ACCC was successful in its first contested proceedings involving alleged breaches of the Dairy Code of Conduct. Milk processor, Lactalis Australia Pty Ltd (Lactalis), was ordered to pay $950,000 by the Federal Court for (among other things) entering into agreements under which Lactalis could unilaterally terminate if farmers engaged in “public denigration” of processors, key customers and other stakeholders.

Review, re-draft or pay the price

These actions serve as an important reminder to all businesses in the agricultural sector of the need to review their standard form small business contracts and remove UCTs now, or potentially risk significant penalties when the new laws come into effect from 9 November 2023.

For additional guidance on the ACCC’s enforcement approach to UCTs, see its recent ACCC media release <here>.

Get in touch with us

If you would like our help in assessing the application of the UCT regime to your contracts or wish to assess and manage the UCT risk with your standard terms then please get in touch.

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