Unfair contract terms and the potential impact of legislative amendments on construction contracts

On 9 November 2023, the final amendments from the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) came into effect, expanding the unfair contract terms (UCT) regime under the Australian Consumer Law (ACL).

As we have previously noted, the amendments make it unlawful to include, apply or rely on an "unfair" term in a standard form "consumer contract" or "small business contract" and include:

  • expanded definitions of "standard form contract" and "small business", broadening the number of contracts and small businesses captured;
  • increased pecuniary penalties for non-compliance; and
  • enhanced court powers to make determinations.

The regime for what makes a term "unfair" under the ACL is detailed: we provided a five-part overview of this when the current reforms were first being discussed back in 2021. Essentially, though, under section 24 of the ACL, a term is "unfair" if it:

  • would cause a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the legitimate interests of the advantaged party; and
  • would cause detriment (financial or other) to the party if it were relied on.

The definition of a "small business" now covers contracts where at least one party, at the time the contract is entered into:

  • employs fewer than 100 employees (increased from 20 people); or
  • had an annual turnover of less than $10 million in the previous income year (previously limited to contracts where the upfront price payable was less than $300,000 for shorter contracts, or $1,000,000 for multi-year contracts).