This blog was updated on 2 November 2022.
A rising number of legal, regulatory and social issues are leading to some of the biggest changes to the contracting landscape in over 20 years. Among these changes, is the introduction of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the Bill) by the Labor Government on 28 September 2022, which proposed reforms to the Unfair Contract Term (UCT) regime.
As of 27 October 2022, the Bill received unanimous agreement and has passed both Houses of Parliament. The UCT reforms will come into effect 12 months after Royal Assent (generally between 7 – 10 working days following the Bill passing through Parliament).
The reforms will significantly increase the financial and reputational risks for businesses contracting with Australian consumers and small businesses across a range of industries and sectors. In line with the Bill put forward by the former Liberal Government, among other amendments, the new laws will make unfair terms in standard contracts unlawful via the introduction of a prohibition to propose, apply, rely or attempt to apply and rely on those unfair terms. Furthermore, the reforms introduce severe penalties (even more compared to the $10 million put forward by the former Liberal Government). Under the new laws, for each contravention of the prohibition against unfair terms, corporations face maximum penalties of $50 million or more under the Australian Consumer Law (ACL) and 50,000 penalty units (currently $11.1 million, but will be higher following the proposed increased in the value of the penalty unit announced on Budget night) or more under the ASIC Act 2001 (Cth) (ASIC Act), with mechanisms providing for greater penalties if the percentage of annual turnover or benefit derived from the unfair terms exceed these amounts.
It is strongly recommended that businesses mitigate their UCT risk by preparing during the 12-month transition period. This is also a prime opportunity for businesses to re-evaluate internal procurement systems and processes, and contracting controls and governance, to build and enable a better contracting experience for customers and other contracting parties.
The reforms include:
The maximum penalties for each contravention of the statutory prohibition are as follows:
Expansion of ASIC and ACCC’s powers
The reforms have also responded positively to the various consultation submissions which called for additional powers for ASIC and ACCC in relation to UCT. For example, to issue notices and seek disqualification orders to prevent a person from managing a corporation.