New Unfair Contract Term Laws

In September this year, the Federal Government introduced legislation to reform unfair Contracts for small business’ otherwise known as the ‘UCT Reform Bill’ (“the Bill”). The explanatory memorandum of the Bill states that it will “act to strengthen and clarify the existing unfair contract terms provisions”  to reduce the frequency of including, applying or relying on unfair terms in standard form and small business contracts.  

Existing protections under the Australian Consumer Law and the Australian Securities and Investments Commission Act (2001) (Cth) (‘ASIC Act’) provide that where a Court determines a contract clause to be unfair, the term is void. The explanatory memorandum of the Bill notes that “this approach has not provided sufficient deterrence against the use of unfair terms, which remain prevalent in standard form contracts” .

What changes will be made?

Some key changes proposed in the Bill are:

1. Penalties

In addition to the current penalty of rendering the unfair term void, Courts will have the ability to order pecuniary (monetary) penalties for the party in breach of the law, and they will have more flexibility to impose civil penalties on parties in breach.

2. Scope

The definition of ‘small business’ would be expanded under the law, meaning that these protections would apply to any standard form contract where the business has fewer than 100 employees or annual turnover of less than $10 million.

3. Ability for multiple breaches

Each individual unfair term in a contract is considered a separate contravention under the law, and accordingly, a person can be found to have made multiple breaches in one contract, which could result in penalties imposed for each individual breach within the one contract.

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If passed by Parliament, the Bill is intended to commence 12 months after receiving Royal Assent, which will provide businesses with time to review their contracts in preparation for the new provisions. The law would apply to any standard form contract entered into or renewed after commencement of the Act.

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