Important changes to the unfair terms regime in the Australian Consumer Law are taking effect from the 9 November 2023. It is a good idea to have your contracts reviewed to ensure that they do not contain unfair terms.

Greater reach

The unfair terms regime only applies to standard form contracts that are either small business or consumer contracts. However:

• under the changes, the Federal Court has been given greater leeway to decide that a contract is a standard form contract;
• also, the definition of a small business contract has been expanded, with the consequence that the unfair terms regime now applies to a greater number of businesses that enter standard form contracts.

 Wider powers for the Federal Court

If you are a party to a contract to which the new unfair terms provisions apply and you are advantaged by an unfair term, the court may make orders:

• preventing the same or a substantially similar term from being included in any future standard form consumer or small business contract to which you are a party;
• requiring you to redress the loss or damage caused, or to prevent or reduce loss or damage that is likely to be caused by the presence of a similar term in in any existing standard form consumer or small business contract to which you are a party.

New penalties

For an individual, the maximum penalty for contravening the new unfair terms regime is $2.5 million.

For a corporation, the maximum penalty for a contravention is the greater of:

• $50 million;
• three times the value of the benefit that the corporation derived from the contravention – if the court can determine the value of the benefit;
• if the court cannot determine the value of the benefit – 30% of the corporation’s adjusted turnover during the breach period (which will be at least 12 months).

These penalties apply afresh for every contravention of the new unfair terms provisions. A party to a contract contravenes these provisions:

• for every unfair term in a contract (if the party proposed the term); and
• every time the party applies or relies on (or purports to apply or rely on) an unfair contractual term.

As a consequence, the penalty for a party which contravenes the new unfair terms provisions can very easily grow.

Who these changes will affect

These changes to the unfair terms regime only apply to:

• standard form consumer and small business contracts that are made or renewed on or after the 9 November 2023;
• an individual term in a standard form consumer or small business contract if the contract was made before the 9 November 2023 and the particular term is amended on or after that date (without the contract as a whole being renewed on or after that date).

If you intend to enter or renew a contract or vary a term in an existing contract or if you have any questions about the new unfair terms regime, please do not hesitate to get in touch. Contact us on (03) 9039 2142.