Protecting Consumer and Small Business Rights
From 9 November 2023, Australia Consumer Law (“ACL”) will redefine the way consumer contracts are structured and enforced, with a primary focus on preventing unfair contract terms and promoting transparency.
“The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms” ACCC Deputy Chair Mick Keogh said
These pivotal changes to Australian contract law include:
Banning of Unfair Contract Terms
Currently, a court can only declare specific terms of a contract unfair and therefore void. After 9 November 2023, the court can impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts. The maximum financial penalties for businesses under the new unfair contract terms law are the greatest of:
- three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this; or
- if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
Previously, a small business was typically one with 20 or fewer employees and an upfront price under $300,000 or $1 million for contracts lasting more than 12 months.
However, on or after 9 November 2023, small businesses will be covered by the unfair contract terms protections for any new or varied standard form contract from that date if they:
- employ up to 100 employees; or
- annual turnovers less than $10 million
Standard Form Contract
New changes to the law give more guidance in determining whether a contract is a standard form contract:
- Both parties’ bargaining power about the transaction;
- Any discussions between the parties about the transaction before prepared the contract
- Whether a party had little choice but to accept or reject the contract’s terms as presented
- Any real opportunity to negotiate the terms of the contract
- Any specific features of a party or the particular transaction
- whether the party that prepared the contract has also made other contracts that are the same or very similar and the number of times this has been done
- Any other factors the court thinks relevant
The legal amendment also clarifies that a contract may still be categorised as a standard form contract, even if:
- The other party had some latitude to negotiate minor or inconsequential alterations to the contract terms.
- The other party could select terms from a predefined range determined by the drafting party.
- The drafting party allowed a third party to negotiate the terms of a separate contract.
As these changes come into effect, it is essential for both consumers and businesses to be aware of their rights and obligations under these revised regulations. Seeking legal advice from Arcuri Turnbull Law when entering into complex agreements can provide the necessary guidance to navigate the evolving contract landscape.
Author: Audrey Wang