More Prohibitions, Greater Penalties: We recently posted this KWM Alert about the changes to penalties and unfair contract terms proposed in the recent Treasury Laws Amendment (More Competition, Better Prices) Bill 2022.

In fulfilment of key Labor election promises, legislation was introduced into the Federal Parliament this week to make unfair contract terms illegal and raise maximum penalties for breach of competition and consumer laws.

If passed into law, the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill) will:

  • substantially increase the maximum penalties applicable to certain breaches of the Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Consumer Law (ACL)
  • prohibit outright with risk of civil penalty, the proposal, application or reliance on an unfair contract term in standard form consumer or small business contracts.

Key elements of proposed reform

Raising maximum penalties

The Bill proposes to substantially increase the maximum penalty for most contraventions of the CCA and ACL. The proposed new maximum penalties are:

  • For body corporates: The greater of:
    • $50 million (a fivefold increase from the current maximum of $10 million);
    • three times the value of the benefit obtained; or
    • if the court cannot determine the total value of those benefits, 30% of adjusted turnover during the ‘breach turnover period’ (increasing from 10% of annual turnover in the 12 months prior to the conduct).
  • For individuals: $2.5 million (up from $500,000).

In the exposure draft stage, the proposed penalty increases were met with some criticism, including because the maximum penalty for consumer law contraventions will jump by a multiple of almost 50 over a five-year period (from $1.1 million in 2018 to $50 million). However, the Federal Government has maintained its position that the proposed increases are necessary to ‘ensure the price of misconduct is high enough to deter unfair activity’. Our previous Alert about the exposure draft is available here.

While the headline figures of $50 million and 30% have received the most focus, in practice it may prove that the introduction of the ‘breach turnover period’ will have the greatest impact on increasing maximum penalties. This is because the relevant turnover for this limb can be calculated to cover the entire time period over which the contravening conduct occurred, with 12 months effectively being the minimum.

Banning unfair contract terms

Currently, a contractual term found to be unfair is void but there are no immediate pecuniary consequences for the party trying to enforce the term. For an example of how the current regime applies in practice, check out our blog on the recent Fujifilm decision, available here.

The proposed reforms would drastically change this position by prohibiting unfair terms outright and making the proposal, application, or reliance on an unfair term in standard form contracts subject to civil penalty.

The Bill also expands the operation of the unfair terms regime to a broader range of small business contracts, by:

  • widening the business eligibility thresholds: increasing the regime’s application to businesses with less than 100 employees (up from 20 employees), or, alternatively, businesses with annual turnover of less than $10 million; and
  • removing altogether the monetary ceiling for the value of contracts subject to the ACL regime, and raising the threshold in the ASIC Act from $300,000 to $5 million.

Additionally, where a court declares a term unfair, it will be able to make orders:

  • preventing a term, that is the same or substantially similar in effect to the declared term, from being included in any future consumer or small business contract to which the respondent is a party. The court will be able to restrain respondents from such making future contracts by ordering injunctions; and
  • redressing loss caused by, or likely to be caused by, a similar term in the respondent’s existing contracts.

These orders are available to the court even if those other future or existing contracts are not actually before the court. These changes appear to put the onus on businesses to actively monitor terms declared to be unfair and review their own contracts to address potentially unfair terms.

What does it mean for businesses?

Introducing this Bill into Parliament signals the Federal Government’s intention to deliver on its election promises to toughen Australia’s competition and consumer protection laws. If the proposed changes are passed into law, businesses stand to face substantially greater financial consequences if they fail to comply with the CCA and ACL.

With regard to unfair terms, while the Bill includes a 12-month grace period for the changes to take effect, it is a timely reminder for businesses to continue monitoring and reviewing their contracts and practices for any potentially unfair terms, and take the necessary steps to ensure compliance with the new provisions.

What’s next?

The Bill is now before the House of Representatives and debate is expected to continue into the next Parliamentary sitting in late October.

In the meantime, we’ll be sharing our insights on the finer details of the proposed reforms and what it means for your business, so stay tuned for our next blog post.