The teeth of the tiger – penalties coming for unfair contract terms

When the unfair contract terms provisions of the Australian Consumer Law were extended to apply to small business contracts in late 2016, some users of these contracts made no changes or took a fairly “light touch” approach to reviewing their template agreements.  This is possibly because it was unlikely a dispute over whether a clause was fair would ever see a courtroom. A claim by the other contracting party was not likely to be run to a final determination and the extent to which the Australian Competition & Consumer Commission would take action remained to be seen. It may have been reasonable to assume the ACCC’s enforcement focus would be on the larger or higher profile operators. Finally, the consequence of including an unfair term is limited to not being able to enforce the clause. No penalty applies.

But times are changing for unfair contract terms.

Both the major political parties have expressed support for reforms to these laws, and in particular, the introduction of monetary penalties for having unfair terms in standard form small business contracts.

Amendments may include:

  • Making the terms illegal and attaching civil penalties to breaches – a maximum penalty of AU$10 million was suggested by the Labor party.
  • Redefining small business as a business that employs fewer than 100 persons or has an annual turnover of less than AU$10 million – currently the laws require one party to be a small business (defined as a business with fewer than 20 employees).
  • Removing the value thresholds so the laws apply to more contracts – the laws presently apply where the upfront price payable under the contract is not more than AU$300,000 for contracts with a term of 12 months or less, or AU$1,000,000 for longer contracts.

Since the laws were extended in 2016, the ACCC has been particularly active in investigating and enforcing breaches.  For example, a recent ACCC investigation of Uber Eats led to it amending its contract terms with restaurants.

Given the likelihood of strengthening of these laws in the near future, and the recent enforcement action by the ACCC, any business which uses template or standard contracts should consider review of those documents.