Changes to the unfair contract terms regime – 3 months to go
Written by Hayden Bateman
After a 12 month transitional window, the Australian Consumer Law’s unfair contract terms (“UCT”) regime is about to expand.
The new regime will apply to standard form contracts entered with consumers or small businesses pursuant to which there is a:
- supply goods or services;
- sale or lease of land; or
- supply financial services or products.
From 10 November 2023, the UCT regime will apply to any ‘standard form contract’ entered into or renewed with a person or business that:
- has fewer than 100 employees (increased from 20); or
- has an annual turnover of less than $10 million.
What is ‘standard form’
Whether a contract is ‘standard form’ is not always straightforward. Under the Australian Consumer Law (“ACL”), in the event of a dispute, the contract will be presumed to be ‘standard form’ unless the party asserting it is not, proves otherwise.
In determining whether a contract is a ‘standard form’ the court must consider:
- whether a party was required to accept or reject the terms of the contract in the presented form;
- whether a party was given an effective opportunity to negotiate the terms of the contract; and
- whether a party has previously used the same or a similar contract.
A contract may still be ‘standard form’ despite including amendments to the contract originally proposed to be entered, if those amendments are minor or insubstantial in effect.
What is ‘unfair’?
Having regard to the extent to which the term is transparent, and the contract as a whole, a term will be ‘unfair’ if it:
- causes a significant imbalance in the parties’ rights and obligations arising under the contract;
- is not reasonably necessary to protect the legitimate interests of the advantaged party; and
- it would cause detriment to a party if it were to be applied or relied upon.
Common examples of unfair terms include terms that:
- permit one party, but not another, to terminate the contract;
- penalise one party, but not another, for breach or termination of the contract;
- permit one party, but not another, to unilaterally vary the terms of the contract;
- permit one party, but not another, to renew or not renew the contract (including automatic renewal terms);
- permit one party to unilaterally determine whether a contract has been breached; or
- limits one party’s right to sue another party.
What do you need to do?
As of 10 November 2023, significant financial penalties may apply to any person or business caught in breach of the regime.
Time is running out to review all proposed, renewable or variable standard form contracts and ensure compliance.
Contact Hayden Bateman or Chantel Cunningham for assistance with your contract preparation and review before 10 November 2023.
