In 2018, the Federal Government undertook a review of the unfair contract terms (UCT) regime and found that the current regime did not provide sufficiently strong deterrence against businesses using unfair terms in standard form contracts. Information gathered in the review also suggested that some aspects of the regime were ambiguous and created difficulties for businesses trying to comply with the law.

The Federal Government has released a draft bill which seeks to address these issues. The Bill proposes to amend the Australian Consumer Law (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). The proposed new regime will:

significantly expand the range of businesses to which the UCT provisions will apply – it will apply to standard form contracts where at least one party has fewer than 100 employees (as opposed to the current cap of 20 employees) or an annual turnover of less than $10 million. The requirement that the upfront consideration payable under the contract fall below a threshold level will also be removed; and
expose businesses to significant civil penalties for proposing, applying or relying on a UCT – currently a UCT is void (unable to be enforced), but there are no penalties.

Other key proposed changes include:

allowing the court greater flexibility regarding remedies, rather than simply determining the provision to be void;
introducing a rebuttable presumption that certain terms which are the same or substantially similar in effect to a term which has been found to be a UCT will also be unfair when used in similar circumstances;
providing clarity on the definition of a standard form contract; and
exclusion from the protection of the regime of certain clauses that refer to ‘minimum standard’ provisions or other industry-specific requirements.

The rationale behind the proposed changes is to stop larger, more powerful businesses taking advantage of their bargaining power and issuing standard form contracts on a ‘take it or leave it basis’. The changes, and the interaction between the UCT regime and other ACL provisions, such as misleading and deceptive conduct, mean the risk and consequences of non-compliance will both materially increase.

The current UCT regime was recently the subject of Federal Court proceedings, ACCC v Fuji Xerox Australia Pty Ltd[1]. The case provides useful and timely guidance on the types of contract terms that are likely to be considered ‘unfair’. Examples include:

unilateral variation terms;
automatic renewal terms;
unreasonable termination and payment terms;
excessive exit fees; and
unilateral price increases.

These types of provisions are commonly used in commercial contracts.

While the new UCT regime is not yet law, and may be subject to changes before introduction, businesses using standard form contracts to contract with consumers and small businesses should be careful to ensure those contracts do not contain unfair terms, regardless of what changes may end up being introduced.

Our Corporate & Commercial team regularly advise on commercial contracts and can assist in drafting, reviewing and advising on commercial agreements. If you require any advice, please do not hesitate to contact us.

This article was co-written by Madeline Tait, Lawyer in the Corporate & Commercial Team.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

[1] [2021] FCA 153.

Unfair Contract Terms – Major Reforms Proposed