Government to strengthen unfair contract terms protections

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On 28 March 2019, it was announced by joint media release that the Government will seek to strengthen protections to all small businesses from unfair contract terms by the Hon Stuart Robert, MP and the Hon Michaelia Cash, Senator (Media Release).

Although one of the regulatory bodies of the unfair contract term regime, the ACCC, believed the current criteria in the Australian Consumer Law (ACL) would cover most small business transactions, it has been determined that this is inaccurate.  The Media Release states that the current regime appears to have created ambiguity, uncertainty and practical difficulties for businesses in complying with the law.  This is certainly consistent with our views.  Some of the major flaws in the existing regime include:

  • unfair contract terms are not illegal; and
  • the regulatory bodies, ACCC and ASIC, cannot seek penalties when the court has declared an unfair contract term void, nor can they issue infringement notices for contract terms that are likely to be unfair.

The Current Unfair Contract Terms Regime

On 1 July 2010, the ACL and the Australian Securities and Investments Commission Act 2001 (ASIC Act) introduced protections for consumers against unfair contract terms in standard form contracts.  In November 2016, this protection was extended to cover standard form, small business contracts which meet prescribed criteria.  This extension was initially addressed by us in our articles titled, ‘Take it or leave it: review your standard contracts or run the risk of them being unenforceable’ and ‘B2B unfair contract terms being tested by ACCC’.  The prescribed criteria for small business contracts are:

  • the contract is a standard form contract;
  • the contract is for a supply of goods or services, or a sale or grant of an interest in land;
  • at the time the contract was entered into, at least one of the parties is a business that employs less than 20 people, including casual employees; and
  • either the upfront price payable under the contract does not exceed $300,000 or, if the contracts is for a duration of more than 12 months, the upfront price payable does not exceed $1 million.

Under the regime, a Court can declare a term of a standard form contract to be unfair, and therefore, void.  However, as there is no current regime that prohibits the inclusion of unfair contract terms in a standard form contract, the regulatory bodies do not have the power to impose penalties for imposition of unfair contract terms that are voided.  A further flaw in the regime is that companies cannot be held accountable for prior conduct if the company simply amends their unfair contract terms.  As highlighted by ACCC Chair Rod Sims, it is evident from these limitations that the laws surrounding unfair contract terms are not in line with other provisions of the Competition and Consumer Act 2010 (CCA).

Result of the 2018 Government Review of the Unfair Contract Terms Regime

The Government agreed to undertake a review of the effectiveness of the extension of the protection to small businesses within 2 years after its commencement, with the review starting on 12 November 2018.  In the Media Release, it was said that the review found:

  • ‘whilst the current unfair contract terms regime has improved protections to small businesses in certain industry sectors, it does not provide strong deterrence for businesses to not use unfair contract terms and does not afford appropriate protections to many small businesses; and
  • the need for regulators to improve their guidance for complying with the law and to work with industry stakeholders to promote awareness of the unfair contract terms protections for small businesses.’

As a result of the review findings, a Government consultation will commence on the following options to amend the unfair contract terms regime for small businesses:

  • making unfair contract terms illegal and attaching civil penalties to breaches;
  • redefining small business for the purposes of the protections as a business that employs fewer than 100 persons at the time the contract was entered into or had an annual turnover less than $10 million;
  • broadening the coverage of small business contracts by removing the value threshold;
  • further clarifying the definition for a ‘standard form contract’;
  • considering exempting ‘minimum standards’ prescribed by state and territory laws; and
  • whether it is appropriate to apply any enhanced protections for small business to consumers and insurance contracts.

The Government consultation has not commenced as at the date of this paper.

At Bryks Lawyers, we have extensive experience in dealing with the Competition and Consumer Act and the Australian Consumer Law. Contact our team today for group training programs, individualised compliance programs and easy-to-read manuals about the competition and consumer law. 

This information is for information purposes only and is not legal advice. You should obtain advice that is specific to your circumstance and not rely on this publication as legal advice. Please contact us if you wish for us to advise you on any issue you may have arising from this publication.

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