This article was originally published on 3 September 2021 but revised with further updates.

On 9 February 2022, legislation amending the unfair contract terms (UCT) regime was introduced into Parliament.

The amendments are included in the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 (the Bill) which, among other proposals, introduces a civil penalty regime for standard form contracts containing UCTs that would apply to an expanded class of contracts.

With one material exception, the Bill is substantially similar to the exposure draft legislation, which was consulted on during 2021. The draft exposure legislation proposed an amendment which would create a new rebuttable presumption. Under this proposal, if a term used in a standard form contract had been declared by a court to be unfair, any same or similar term would also be presumed to be unfair in any subsequent proceeding. Significantly, this amendment has not been included in the version of the Bill before Parliament.

IMPLICATIONS FOR BUSINESS

The Bill represents a significant change in the way in which standard form contracts are defined and the remedial and enforcement outcomes available to courts and regulators if those contracts fail to meet the requisite consumer law standards.

The proposed changes would apply to new contracts made on or after the commencement date as well as existing contracts that are renewed or terms that are varied on or after the commencement date. Businesses will have time to prepare, with the law not scheduled to commence until 12 months after it is passed.

  • Are more of your contracts caught? The Bill expands the class of contracts that are covered by the UCT provisions. It is important to consider whether this expanded definition will apply to a greater number of your standard form contracts and increases your potential risk of exposure under the Bill.
  • Introduction of pecuniary penalties: The introduction of pecuniary penalties for UCTs and the availability of disqualification orders for individuals reinforces the need to ensure that your standard form contracts are compliant with the ACL and that customer facing staff are trained in and well aware of their consumer law obligations. The introduction of a pecuniary penalty regime is significant (under the current regime unfair terms are not enforceable). There is some inherent uncertainty as to when a provision will be found to be unfair. Businesses will need to grapple with this uncertainty and its consequences. The possibility of pecuniary penalties may require a reconsideration of relevant terms.

What is the detail of the changes?

The Bill would amend the Australian Consumer Law and the Australian Securities and Investments Commission Act. Summarised in the table below are the key changes to the UCT provisions:

Determining whether or not there is a standard form contract

The Bill provides further clarity around the definition of a standard form contract by setting out matters the court must take into account when considering if a contract is standard form, including:

  • whether a party has entered into a contract that is the same or substantially similar to another contract entered into by that person and the number of times this has been done;
  • when determining whether a party was able to genuinely negotiate a contract, a court is to disregard instances where a party:
    • has negotiated minor or insubstantial changes to the terms of a contract;
    • is given the ability to select from a pre-determined range of terms within a contract; and
    • to another similar contract has been given an effective opportunity to negotiate the terms of that contract.