Written by Jessica Woods
On 9 November 2022, the Treasury Laws Amendment (More Competition, Better Prices) Act 2022(Cth) received royal assent. As of today, the scope of the unfair contract terms (UCT) has been expanded and strengthened.
So, what exactly does this mean? We have provided a helpful table below highlighting some of the changes.
HOW IS A SMALL BUSINESS DEFINED?
| CURRENT POSITION | NEW POSITION |
| 1. One party to the contract is a business that employs less than 20 people; and 2. the contract has a duration of less than 12months, in which the upfront price payable under the contract must not exceed$300,000, or the contract has a duration of more than 12 months, in which case it must not exceed $1 million. | The new UCT regime will apply to a small-business contract if one party to thecontract is a business that: · employs less than 100 people; or · has a turnover for the last income year of less than $10 million. The monetary threshold has now been removed. Note, the ASIC Act has retained the monetary threshold, being the upfront price payable under the contract does not exceed$5 million. |
WHAT IS CONSIDERED A STANDARD FORM CONTRACT?
| CURRENT POSITION | NEW POSITION |
| The court is to consider a number of factors when determining whether a contract is a standard form contract, including: · Whether one party has all or most of the bargaining power, · When the contract had been prepared, and by who, · Whether a party was required to reject or accept the terms of the contract in the form which they were presented, Whether a party was given an effective opportunity to negotiate the terms of the contract. | In addition to the current factors which must be taken into consideration by the court, a court must now also take into account whether one of the parties to a contract has used the same or a similar contract before. A court may also find a contract to be a standard form contract despite there being an opportunity for a party to negotiate terms which are minor or insubstantial, or to select a term from a range of options determined by the other party. |
In addition to the above, the changes include the introduction of a civil penalty regime which will prohibit the use of, and reliance on, unfair contract terms by businesses. For companies, the penalty will increase to the greater of:
· $50 million (formerly $10 million);
· three times the value of the benefit to the company if able to be determined; or
· 30% of the corporation’s turnover during the offence period (formerly 10% of the annual turnover only in the 12 months prior to the breach).
The changes above will apply to:
- Standard form contracts made or renewed on or after 9 November 2023; and
- A term of a contract that is varied or added on or after 9 November 2023.
We encourage all businesses to careful consider the changes and the impact they may have on their operations. Should you wish to discuss the changes and the implications, please contact James Mulcahy on (03) 9947 4530 or Jessica Woods on (03) 9947 4516.
