Amendments to the unfair contract terms regime – coming to a contract near you

Current Law

New Law From 9 November 2023

No current equivalent

Penalties introduced

A financial penalty may be imposed if a person proposes, applies, relies on or purports to apply or rely on, an unfair contract term.

In determining if a contract is a standard form contract, a court must consider a number of factors including whether one party was required to accept or reject the terms in the form they were given to it and whether a party has an effective chance to negotiate the terms.

Determining what is a standard form contract – negotiation and range of options selection opportunity

A contract may be determined to be a standard form contract despite there being an opportunity for:

• a party to negotiate changes to contract terms that are minor or insubstantial in effect;
• a party to select a term from a range of options determined by another party; or
• a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

The unfair contract terms protections apply to a small business contract if one party to the contract is a business that employs fewer than 20 persons and the upfront price payable under the contract does not exceed one of the two
alternative monetary thresholds provided for in the law.

Change to what is a ‘Small Business’ contract

Under the Australian Consumer Law (ACL), the unfair contract terms protections will apply to a small business contract if one party to the contract is a business that employs fewer than 100 persons and / or has a turnover for the last income year of less than $10,000,000.

Under the ASIC Act, the protections will apply to a small business contract if the upfront price payable does not exceed $5,000,000, and one party to the contract employs fewer than 100 persons and / or has a turnover for the last income year of less than $10,000,000.

Under both the ACL and ASIC Act part time employees are to be counted as an appropriate fraction of a full‑time equivalent employee.

Where a court determines a term in a standard form contract to be unfair, it is automatically void.

The court can also make orders for the whole or any part of a contract or collateral arrangement between a respondent and another person, including that the contract is void.

These orders can made by an affected party or by application of the regulator (e.g. ACCC or ASIC) on behalf of either a party or a non‑party when a person or class of persons has suffered, or is likely to suffer, loss or damage.

Powers of the Court

The court can make orders with respect to a whole contract or collateral arrangement, including to void, vary or refuse to enforce the contract, if this is required to prevent loss or damage that is likely to be caused.

The court is not required to consider whether the orders will remedy actual loss or damage.

The court can also make orders, on the application of the regulator, stopping a party from using a term that is the same or substantially similar in effect to a term that has been declared as unfair. This will also include exclusion from use of the term from any future standard form small business or consumer contracts involving that party.

The court can make orders, on the application of the regulator, to prevent or reduce loss or damage which is likely to be caused to any person by a term that is the same or substantially the same in effect to a term that has been declared unfair.

The court also has the power to issue an injunction on terms it thinks fit to restrain a party from applying, relying on, or purporting to apply or rely on, a term of a contract that has been declared as an unfair term.

Extra injunctive powers

The court can now also issue an injunction to restrain a person from:

• entering into a future contract that contains a term that is the same or similar in effect to a term that has been declared an unfair contract term; or
• applying, or relying on, a term in an existing contract that is the same or similar in effect to a term that has been declared an unfair contract term, whether or not that contract is before the court for determination

In determining whether a contract is a standard form contract, a court must take into account a number of factors.

Additional consideration - repeated use of the contract

In addition to the current matters that a court is to consider when determining whether a contract is a standard form contract, a court must also take into account whether one of the parties has used the same or a similar contract previously.

Contractual provisions required or expressly permitted by a law of the Commonwealth, state or territory, are exempt from the unfair contract terms regime.

Further exemption - clauses included by law

In addition to the current exemptions to the unfair contract terms provisions, contractual provisions that are taken to be included in a contract by operation of a Commonwealth, state or territory law are also excluded to the extent that the relevant law mandates their inclusion.

Further, a clause of a contract that results in other contract terms being included in a contract because of the operation of another law of the Commonwealth, state or territory, is exempt from the unfair contract terms provisions to the extent the provisions would prevent the other terms from being included or operating as required by the law.

No current equivalent

Exclusions form the UFC regime

Certain categories of contracts are excluded from the operation of the UFC provisions. These include:

• the operating rules of licensed financial markets such as ASX Limited;
• the operating rules of licensed clearing and settlement facilities; and
• real time gross settlement systems approved as payment and settlement systems by the Reserve Bank of Australia;
• certain life insurance contracts, in order to ensure positive consumer outcomes.

The current law refers to “non-party consumers” (despite applying to both consumers and small which was confusing as the law applied to consumers and small businesses.

Non party

The law refers to “non-party” to clarify that the law applies to both consumers and small businesses.