Radical changes to the Competition and Consumer Act have put corporations using unfair standard form contracts on notice.
The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 became law on 9 November, with groundbreaking effects.
The legislation outlaws unfair contract terms with maximum civil penalties for breaches available under the Competition and Consumer Act in some cases quintupled.
Maximum penalties for companies in breach are now greater than $50 million or three times the value derived from the relevant breach. Where the latter cannot be determined, courts can use 30 per cent of the company’s turnover during the period it engaged in the conduct.
Individuals will be subject to a maximum penalty of $2.5 million per breach.
The definition of standard form contracts and “small businesses” have also been amended to maximise the new regime’s reach.
Most businesses that use standard form contracts in Australia are captured by the changes and have been granted a grace period ending on 10 November 2023 to address any potential issues.
It is expected the Australian Competition and Consumer Commission (ACCC), which has been actively campaigning in favour of these changes for several years, will then be targeting standard contracts containing unfair contract terms.
MV Law special counsel Massimo Di Maio said between the criminalisation of unfair contract terms, increased penalties for contravention and scrutiny from the ACCC, corporations that don’t properly review their contracts risk being shut down entirely if found in breach.
“Fifty million dollars is a hefty penalty and that number is per contravention,” he said.
“Just this year there was a finding that Fuji Film had entered into 34,000-odd contracts with small businesses and those contracts included something like 38 unfair contract terms each. If that case had been penalised under the new laws, Fuji Film would have been subject to the new super fines, per contravention and for each time that party had entered into a contract.
“In other words, Fuji Film could have faced maximum penalties of $50 million per each of the 38 contraventions, times 34,000 – or more if 30 per cent of the company’s adjusted turnover during the breach period was the greater number.”
Mr Di Maio said the changes were designed as a deterrent, addressing deficiencies in the previous regime.
“Prior to this change, the ACCC could seek an order from the court to make an unfair contract term void and seek to obtain an enforceable undertaking from the corporations they sued,” he said.
“The compliance programs required by the ACCC was sometimes a question of a few hundred thousand dollars and corporations could take the ‘commercial approach’ of risking the smaller loss of possible litigation under this regime.
“From 10 November 2023 it will be illegal to have unfair contract terms in standard form contracts. And in just five years, the maximum penalties under the Competition and Consumer Act have gone from $1 million to $10 million and now, to over $50 million.”
Standard form contracts are prepared by one party and given to the other on a “take it or leave it basis”.
Mr Di Maio said unfair contract terms could cover anything that would cause “significant imbalance of rights or obligations between parties which is not reasonably necessary to protect the interests of the issuing party and could cause detriment, financial or otherwise, to the other party”.
“One typical example is any clause allowing the issuing party the ability to unilaterally vary the terms of the contract including what’s provided or fees payable,” he said.
“Another example is a clause dealing with a party’s ability to limit or exclude liability in a contract entirely or provisions allowing one party to terminate the contract but not the other.
“For example, some contracts allow the issuing party to terminate for convenience just by giving a certain amount of notice, even if the other party has already invested some money to fulfil their side of the contract and would be at a loss of the other party terminated.”
Mr Di Maio said corporations and individuals wishing to mitigate risk should revisit their standard form contracts before the grace period ends on 10 November 2023.
As for anyone signing a standard form contract, Mr Di Maio advises looking at the material on the ACCC website and obtaining legal advice.