ACCC welcomes expansion of unfair contract terms laws

unfair contracts laws expanded
Higher penalties imposed against unfair contract term breaches. Image Bigstock

The Federal Parliament has passed the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, effectively imposing new and higher penalties against unfair contract terms and other specific breaches.

The amendment will introduce penalties and other changes relating to unfair contract terms, as well as significant increases in maximum penalties for breaches of certain provisions of the Competition and Consumer Act including the Australian Consumer Law.

These maximum penalties will apply to a range of offences and civil penalty provisions under the Australian Consumer Law including unconscionable conduct, false or misleading representations, and harassment and coercion. They also apply to most civil and criminal offences under competition law, including cartel offences, the news media and digital platforms mandatory bargaining code provisions, the international liner cargo shipping provisions, and the prohibited conduct in the energy market provisions.

Unfair contract laws expanded and maximum penalties increased

Maximum penalties for companies that breach those provisions have increased to the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct. For individuals, the penalties also increased to $2.5 million.

Penalties for unfair contract terms will come into effect the day after 12 months have passed after the bill receives Royal Assent but the higher CCA penalties will apply the day after Royal Assent is granted.

“The increase in penalties should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers,” ACCC Chair Gina Cass-Gottlieb said. “These maximum penalty changes will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”

Before the amendments introduced penalties for businesses that include unfair contract terms in their standard form contracts with consumers and small businesses, the Courts could declare specific terms of a contract unfair and therefore void, but it could not impose any penalties on businesses that included them in standard form contracts.

Businesses have 12 months to update standard form contracts

“We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply,” Cass-Gottlieb added.

“Businesses have 12 months to review and update their standard form contracts before these penalties apply. These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future,” she added. “Many small business complaints about big business are about unfair contract terms and it will be an enormous boost to small businesses that there will be a far stronger deterrent against the use of such terms.”

The changes will also expand coverage to more small business contracts, up to small businesses which employ fewer than 100 persons or have an annual turnover of less than $10 million. The changes also clarify other aspects of the laws, such as more clearly defining ‘standard form contracts’.

“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers,” Cass-Gottlieb said. “However, by definition, these contracts are largely imposed on a ‘take it or leave it’ basis. The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power. We are pleased that these laws have been strengthened.”

This article was first published on sibling website Inside Small Business.