Businesses Beware! Changes to the Unfair Contract Terms Regime and Higher Penalties Under The Competition and Consumer Act 2010 (Cth)

09 NOV 2022

 

With the passing of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill) on 27 October 2022, significant amendments to the Competition and Consumer Act 2010 (Cth) (Act) and the Australian Consumer Law (ACL) will soon become law, being:

  • substantial increases to the maximum penalties under the Act for engaging in anti-competitive conduct and breaches of the ACL; and
  • unfair contract terms becoming illegal and being subject to financial penalties.

 

Increased penalties for breaches of the Act

Maximum penalties for anti-competitive conduct and breaches of the ACL will, for body corporates, increase to the greater of:

  • $50 million (currently $10 million);
  • three (3) times the value of the reasonably attributable benefit obtained from the conduct (this remains unchanged); or
  • if the courts cannot determine the value of the benefit, thirty percent (30%) of the body corporates turnover during the period it engaged in the conduct (an increase from the current penalty of ten percent (10%) of turnover).

For individuals, the maximum penalty will increase to $2.5 million (currently $500,000.00).

The higher penalties will apply to breaches which take place after amendments to the Act commence and will apply to a range of offences and civil penalty provisions, including unconscionable conduct, false or misleading representations, harassment and coercion, supplying products that do not comply with safety or information standards or that are covered by a safety ban.

According to the Australian Competition and Consumer Commission (ACCC) “These maximum penalty changes will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”

 

Changes to the Unfair Contract Terms Regime

Prior to the amendments to the Act, unfair contract terms in standard form contracts with consumers and small businesses did not attract financial penalties. Instead, if a Court deemed a term of the contract unfair, the unfair contract term would be declared void.

From late 2023, contracts with unfair contract terms will be illegal and businesses will be liable for civil penalties.

The penalties only apply to new contracts (or exiting contracts once renewed or varied) after late 2023 (the exact date to be determined and which will be twelve (12) months after the Bill receives Royal Assent).

According to the ACCC, “Businesses have 12 months to review and update their standard form contracts before these penalties apply. These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future.”

 

Changes to the definition of a small business contract

The current regime applies to contracts entered into with consumers and small businesses.

As a result of the amendments to the Act, a small business contract is now a a contract where one (1) party to the contract is a business that employs fewer than one hundred (100) persons (up from twenty (20) persons) or has a turnover for the last income year of less than $10million (as opposed to the current position where the threshold is determined by reference to the contract value).

 

Considerations for businesses moving forward

The changes to the Act have the following implications for businesses:

  • Businesses should review their current standard form contracts in the next twelve (12) months to ensure that they do not contain unfair contract terms and, if they do, consider amending them to avoid any liability under the Act.
  • There is now a heightened risk of a business’s standard from contracts being caught within the small business threshold.
  • If a business’s standard from contract has an unfair contract term, it is now exposed to greater costs and penalties.
  • Businesses engaging in anti-competitive conduct and breaches of the ACL will now be subject to higher financial costs for their conduct.

 

If you would like advice or assistance in relation commercial law matters, please contact our Senior Associate, Josef Ferraro on jferraro@marsdens.net.au or our accredited business law specialists and Partners Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077.

 

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.

 

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