Exposure draft released: our first glimpse at potential reforms to the unfair contract terms regime

The wheels are in motion for long-awaited reforms to the unfair contract terms (UCT) regime under the Australian Consumer Law.¹ On Monday, Treasury released an exposure draft of the Treasury Laws Amendment (Measures for a Later Sitting) Bill 2021: Unfair Contract Terms Reforms (UCT Bill) and related explanatory materials, detailing proposed reforms to the ACL in addition to the ASIC Act.²

The UCT Bill details proposed changes that are largely consistent with what was projected by the Government after its 2018 Review of Unfair Contract Term Protections for Small Business (Review), and primarily aim to strengthen protections for consumers and small businesses by prohibiting unfair contract terms and providing for pecuniary penalties in response to their use.

The Government is seeking stakeholder views on the exposure draft at this stage, with public consultation to close on 20 September 2021. Depending on what comes out of these submissions, the UCT Bill may be passed in its current form, in an amended form, or not at all.

See our previous article for a recap on the current UCT regime.

What reforms can we expect?

The UCT Bill proposes the following amendments to the current UCT regime:

1. Prohibition and multiple contraventions: Contracting parties will be prohibited from including, applying or relying on unfair contract terms in standard form consumer or small business contracts. It will be possible to breach these prohibitions multiple times in respect of the same contract, or even in relation to the same unfair term where that term is relied upon on multiple occasions.
2. Pecuniary penalties: In addition to the current law which renders a court-determined unfair contract term automatically void, courts may order pecuniary penalties for contracting parties who breach the UCT laws (either in response to an application by a contracting party or the ACCC). Each contravention of the UCT laws (which, as above, can multiply quickly) would be subject to the current ACL penalty regime, which has the potential to produce eye-watering penalties.
3. Broader court powers: As well as pecuniary penalties, courts will be afforded additional powers to respond to breaches of the UCT laws. This includes the power to make injunction orders to restrain contracting parties from including, applying or relying on a term that is the same or similar to a term that has been declared unfair in that party’s other contracts, to issue public warning notices and to make orders to disqualify a person from managing a corporation in response to a breach.
4. Rebuttable presumption: To assist the efficiency of the regulator, where a term has, in previous court proceedings, been found to be unfair, the same or a similar term will be presumed to be unfair in any subsequent proceedings. This applies not only where the term is proposed by the same contracting party, but also where the term is proposed by a person in the same industry.
5. Expanded scope for small business contracts: The definition of ‘small business’ will be expanded, meaning that the UCT regime will apply to any standard form contract where one party has fewer than 100 employees or an annual turnover of less than $10 million. In addition, the ‘upfront price payable’ requirement in the definition of ‘small business contract’ will be removed, significantly widening the scope and application of the UCT regime.

Why have these reforms been proposed?

The purpose of the UCT Bill is to strengthen and clarify the existing UCT regime in order to reduce the prevalence of unfair contract terms in consumer and small business standard form contracts. This aims to restore balance to contracting parties where one party might lack the resources and bargaining power to effectively review and negotiate contract terms.

What does this mean for my business?

The changes proposed by the UCT Bill will have a significant impact on any contracting parties that are including, applying or relying on unfair contract terms in their standard form or small business contracts. It is an opportune time for businesses to have their contracts reviewed to ensure that they do not fall foul of the requirements of the UCT regime. In particular, businesses that may have previously had a higher risk appetite in the belief that the risk of regulatory action was low, or businesses that considered their counterparties too large to fall within the definition of small business, should consider taking immediate action.

How can we help?

We have a dedicated consumer law team that can review your contracts to ensure that they comply with the UCT regime and can provide you with related advice on what these changes mean for your business. Please contact us if you would like more information about the services we provide.

This article was written by Teresa Torcasio, Partner, Zoe Vise, Solicitor and Chloe Fabbro, Law Graduate.

¹Competition and Consumer Act 2010 (Cth), Schedule 1 (‘Australian Consumer Law’ or ‘ACL’).
²Australian Securities and Investments Commission Act 2001 (Cth).