This article was written by Grace Saltearn, Taylor Macdonald, Tamara Hunter and Peta Stevenson
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Refresher: What is an "unfair contract term"?
Take me straight to the detail of the key changes!
The Exposure Draft Legislation for the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021 (UCT Exposure Draft Legislation) has been released, proposing significant pecuniary penalties and a broader range of remedies for individual breaches of the Unfair Contract Terms (UCT) provisions contained in the Australian Consumer Law (ACL) and ASIC Act. The UCT Exposure Draft Legislation is open for public consultation until 20 September 2021, although an indicative timeframe for the introduction of these proposed amendments has not yet been released.
The key proposed amendments:
- Introduce significant pecuniary penalties for each individual contravention of the prohibition on proposing, applying or relying on a UCT provision in a standard form contract, meaning businesses could face multiple penalties for various breaches of the three separate prohibitions. This will result in businesses being subject to the same penalty regime as for other contraventions of the ACL (and ASIC Act, as applicable),
- Introduce a rebuttable presumption that that the inclusion of a term that is the same as, or is substantially similar in effect to terms that have been found to be unfair, are also unfair. This means that similar terms will be prohibited from being used in subsequent contracts (unless proven not to be unfair in the subsequent case);
- Introduce more flexible remedies by empowering courts to order additional remedies that are not available for other breaches of the ACL and ASIC Act (including further injunctive powers in some instances) once a term has been declared unfair, whilst retaining the automatic voiding provisions which apply to unfair terms;
- Expand the class of small business contracts that are covered by the regime by increasing the small business definition thresholds and removing the upfront contract value threshold, meaning the regime will capture a broader range of dealings; and
- Clarify certain elements of the regime, including setting out what the court may and may not consider when determining whether a party was given an effective opportunity to negotiate a contract.
Refresher: What is an "unfair contract term"?
Generally, a term of a standard form contract is unfair if it:
- would cause a significant imbalance in the parties' rights and obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- would cause detriment (financial or otherwise) to a party if the term were to be applied or relied
Background to the reform
The release of the UCT Exposure Draft Legislation follows a number of in-depth reviews and consultation processes since the UCT regime was initially introduced in 2010. The regime was intended to provide protections for consumers against unfair terms, in an effort to address the imbalance of bargaining power in relation to small businesses when dealing with standard form "take it or leave it" contracts, which often leave little opportunity for review and negotiation of contract terms.
In 2016, the regime was extended to apply to a broader range of standard form small business contracts that met certain criteria. Following this reform, the Review of Unfair Contract Term Protections for Small Business: Discussion Paper was released which sought views from a broad range of stakeholders. Data gathered from that process suggested that UCT's remained prevalent in small business standard form contracts, and that the regime failed to provide an effective deterrent as a result of the lack of penalties available to the court. The UCT Exposure Draft Legislation seeks to address these concerns.
For further detail on the background to these reforms, please see our blogpost here. In addition, for further detail on the recent extension of the UCT regime to insurance contracts, please see our article here.
Take me straight to the detail of the key changes!
The UCT Exposure Draft Legislation makes a number of key changes to the UCT regime. These changes fall broadly within three main categories:
- Proposed amendments to strengthen the enforcement of the regime and the remedies available;
- Proposed amendments to expand the class of small business contracts that are covered by the regime; and
- Proposed amendments to clarify the regime.
The key changes are summarised in the tables below.
A. Proposed amendments to strengthen the enforcement of the regime and the remedies available |
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B. Proposed amendments to expand the class of small business contracts that are covered by the regime |
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C. Proposed amendments to clarify the regime |
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A more detailed comparison of the changes as against the current law is available in the UCT Exposure Draft Explanatory Materials, which can be accessed here.
What should I do?
If your business deals with consumers or other businesses on a standard contract basis, and either you or the counterparty have less than 100 employees or an annual turnover of less than A$10 million, we recommend reviewing your terms and conditions in light of the proposed broadened scope of the UCT regime.
KWM is assisting clients in undertaking reviews of their standard form contracts to ensure compliance with the proposed regime, as well as working with them to understand what will be required in relation to their specific business structure and customer base. If you'd like to understand how these changes could impact you or wish to draft a submission, please get in touch. We would be pleased to help.