Businesses face penalties for unfair contract terms.

18 December 2020 | Reading time: 2 minutes

Key takeaways.

  • State and territory consumer affairs ministers have recently agreed to strengthen the Australian Consumer Law unfair contract terms regime.
  • Key proposed changes, as outlined in the Treasury’s Regulation Impact Statement, include making unfair contract terms unlawful, imposing penalties and expanding the application of the regime by increasing the ‘small business’ threshold.
  • Businesses should prepare for the changes by reviewing standard form contracts to ensure they do not contain unfair contract terms.

What is an unfair contract term?

A term in a ‘standard form contract’ with a consumer or ‘small business’ will be unfair if it:

  • causes a significant imbalance between the parties;
  • is not reasonably necessary to protect a party’s legitimate business interests; and
  • would cause detriment to a party if relied on.

Examples of unfair contract terms include terms that permit a party to unilaterally terminate or renew the contract or vary the characteristics of the goods or services that are being provided under the contract.

Overview of key changes.

Topic Position under current law Position under Treasury’s preferred proposals for reform
Consequences of an unfair contract term Term is void. Term is unlawful.
Penalties No penalties apply. Civil penalties apply.
Small business threshold ie those that can rely on unfair contract laws Business employs fewer than 20 people. Business employs up to 100 employees, or has an annual turnover of less than $10 million.
Maximum upfront payment under contract is $330,000 or $1 million if the contract is for longer than 12 months. No maximum upfront payment requirement.
Meaning of standard form contract No precise definition, however, law specifies a number of factors it may consider to determine if a contract is standard form. Meaning clarified by adding ‘repeat usage’ as a factor to be considered by court when determining if a contract is standard form.
Presumption of unfairness Not applicable. Rebuttable presumption that a term is unfair if it is the same or similar to a term used in the same industry and that has been declared unfair.

Need advice?

In anticipation of these changes being triggered under the expanded definition of a ‘small business’ contract, you should review your standard terms. The Bespoke team is ready and willing to assist you with reviewing and making any necessary amendments to your standard form contracts.