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Unfair Contract Terms: Lessons Learned in 2022

With less than 12 months until the significant penalties come into effect under the Unfair Contract Terms (UCT) regime on 9 November 2023, businesses should now be considering how to mitigate the potential materials risks in their standard form contracts.  Following our article about the upcoming changes to the UCT regime, below are some of the lessons related to UCT from 2022 in light of the regulators’ enforcement actions.

Lesson 1: Identify your small business customers and suppliers

In Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 9281, the Court found that 38 terms in 11 contracts in question were unfair. The unfair terms were used around 34,000 times, but it was unclear how many were in small business contracts as the required information of the counterparties were not available. Fujifilm was ordered to contact each customer who had entered into an affected contract with Fujifilm to identify if they were a small business, implement a compliance program, publish information about the Court orders on its website, and pay $250,000 AUD of the ACCC’s costs, amongst other orders.

Noting that if ACCC’s enforcement occurred after 9 November 2023, where the maximum penalties under the ACL for UCT's will be up to $50 million+ per contravention, the multiplier effect could have led to very significant penalties for Fujifilm.

Lesson 2:  Beware of automatic renewal clauses

In September 2022, Maxgaming Qld Pty Ltd (Maxgaming)2 entered into a court enforceable undertaking to amend potentially UCTs following ACCC’s investigation into its standard from contracts for the supply of gaming machine monitoring, gaming and maintenance services. A term in question was an automatic renewal term or the ‘rollover clause’, which renewed contracts for a term equal to the initial contract term (up to 6 years in some cases) unless the customer cancelled the contract in writing within a specified time period. Under the relevant terms, Maxgaming was not required to notify the customer that the contract was about to expire and the automatic renewal would occur. Maxgaming acknowledged the terms may have been unfair.

Similar ‘rollover clauses’ have the potential to create much larger issues for businesses as the UCT reforms will apply to contracts entered into or terms amended on or after 9 November 2023. As such, if a term is automatically renewed after 9 November 2023, it will be caught by the new reforms. Businesses should take care to ensure existing contracts with automatic renewals do not contain unfair terms to avoid old contracts attracting the new penalties. Further to this, businesses should consider whether automatic renewal terms are still appropriate, as such terms may be considered unfair in certain circumstances.  

Lesson 3: Keep your finger on the pulse with UCT developments  

In December 2022, the ACCC raised concerns over Fowler Homes Pty Ltd (Fowler)3 standard form home building contracts. The ACCC’s concerns revolved around a non-disparagement term which prohibited 434 of Fowler’s clients from publishing or sharing negative reviews or any other feedback (including online and on social media) about Fowler’s services or its contract without prior permission from Fowler. Fowler provided a court-enforceable undertaking acknowledging that the clause could have stopped clients from speaking out about issues and agreeing to not include the non-disparagement clause in future contracts. Fowler also agreed to send a letter to affected clients, establish a complaint handling system and a compliance program.

The ACCC expressed their disappointment with the Fowler investigation as a number of other building companies have provided court-enforceable undertakings for non-disparagement clauses in the past (e.g. 101 residential Pty Ltd in December 2017 and Wisdom Property Group Pty Ltd in June 2018). The comments from the ACCC reinforce the expectation that businesses will monitor UCT developments within their own industry. This may well be a factor of consideration for penalties for UCTs post 9 November 2023.   

How we can help

Businesses have less than 12 months to prepare and mitigate any risks of penalties related to the UCT reforms. At Deloitte, we have a team of legal, regulatory, operations and risk experts who are committed to helping clients reframe the contracting processes to enhance responsible contracting and create longer term value for their businesses.

These “lessons learned” highlight that a point in time legal review will no longer be enough. Organisations need to ensure that they have adequate contracting systems, operating models and controls in place designed to deal with not only UCT but the raft of recent and upcoming legislative changes including privacy.

As a first step, we can conduct a UCT readiness workshop designed to identify the key risks in the contract lifecycle management process and areas that can be enhanced to enable UCT compliance as well as efficiencies in contract management.

Contact us

Contact our authors for more information about how we can help. 

This blog was co-authored by Mandy Lim, Maddi Miccio, Summita Segaran, and Catherine Pemberton