TREASURY LAWS AMENDMENT (MORE COMPETITION, BETTER PRICES) ACT 2022: CHANGES COMING INTO EFFECT.

1. broadens the scope of the unfair contract terms (UCT) regime by expanding the class of contracts that are covered; and
2. introduces penalties for each contravention of the UCT regime, meaning that businesses could face significant financial consequences for failing to review standard form contracts.

The Act follows concerns from the Australian Competition and Consumer Commission (ACCC) that the old regime did not deter businesses from using UCTs.

One area of focus for the ACCC, when reviewing the use of UCTs, was agriculture.  Most agriculture businesses are small, or family owned, and will frequently deal with standard form contacts from larger organisations.

What is an unfair term?

Under the UCT regime, an ‘unfair’ term:

1. causes a significant imbalance in the parties’ rights and obligations;
2. is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
3. causes financial or other detriment to the other party if relied on.

Examples of these terms include: unilateral variation, indemnity, penalty and termination clauses, automatic renewal clauses, and some exclusivity clauses.

In 2019, proceedings were brought against Mitolo Group Pty Ltd (Mitolo) relating to contracts with its potato growers. The proceedings resulted in several terms in those contacts being declared unfair.  These included rights for Mitolo to unilaterally vary the price paid to growers for their potatoes, to declare potatoes ‘waste’ without a proper process being outlined, and prohibitions on farmers selling to other buyers.  In the Mitolo case pecuniary penalties were applied due to breaches of the Horticulture Code of Conduct.  At the time, however, penalties were not an available remedy under the Australian Consumer Law (ACL).

What contracts are covered by the UCT regime?

The changes will apply to new contracts, renewals, or variations of existing contracts entered on or after 9 November 2023.

The regime, however, only applies to standard-form contracts with consumers and small businesses.

Farmers and agriculture businesses will be familiar with standard form contracts, which may apply when buying machinery, selling produce or engaging an agent.  These are contracts prepared by one party, usually a larger business, with little or no scope for negotiation on the terms. These contracts can disadvantage smaller businesses, who may have little choice but to except the terms offered.

The Act introduces changes to the definition of “small business contract.” From November 2023, a small business contract will encompass contracts where at least one party made the relevant contract while carrying on a business and employed fewer than 100 persons or had a turnover of less than $10 million. This replaces the previous provisions that required one party to have fewer than 20 employees and the contract to have an upfront price payable of less than $300,000 (or $1,000,000 if the contract duration exceeded 12 months).

The Act also clarifies that certain factors should not be considered by the Court when assessing an UCT. As of  November 2023, the Court must not take into account whether a party had the opportunity to negotiate minor changes, choose from multiple options, or negotiate terms with another party. This change will require businesses that previously considered their contracts as non-standard form and exempt from the UCT regime based on these factors to reevaluate their classification.

Penalty changes

The Act introduces a civil penalty regime that prohibits the use of and reliance on unfair contract terms in standard-form contracts.

The courts will now have the authority to impose more significant penalties to ensure that breaches of competition and consumer law are not viewed as merely a cost of doing business but as substantial impositions that require the serious attention of business owners.

The maximum penalty will be the greater of:

• $50 million;
• three times the value of the benefit to the company if it can be determined; or
• 30% of the corporation’s turnover during the period of the offence.

In the case of individuals, the maximum penalty will be $2.5 million.

What to do?

The Act has significantly strengthened the UCT regime and expanded its coverage to provide better protection for consumers and small businesses against unfair contract terms.

It’s important that smaller businesses, that may be more vulnerable to unfair terms, fully review any contracts they enter.  If there are terms that don’t seem fair, ask the other party to amend or remove them.  There are also options to report any UCTs, either within the State or to the ACCC.

For businesses using standard form contracts, now is a good time to review and assess whether there could be any offending terms.  Make sure that you are aware of common unfair terms under the regime and understand the criteria for assessing whether a term may be considered unfair.  Bear in mind that although changes will come into effect in November 2023, reviewing and assessing contracts can be a complex and time-consuming task.