On 28 September, the Federal Government introduced the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill). The Bill combines the following:
- Increases in competition and consumer law fines and pecuniary penalties. These are essentially the same as were in the exposure draft (see our summary here); plus
- Changes to the unfair contract terms (UCT) regime in the Australian Consumer Law (ACL) to impose penalties for unfair terms in standard form consumer or small business contracts. These changes are largely the same as those proposed by the former Liberal government in the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 (TLA Bill, which we discussed here).
Increases in competition and consumer law penalties
The Federal Government has stated that the increases in fines and civil pecuniary penalties are intended to ensure that the penalties for contravening the Competition and Consumer Act (CCA) or the ACL are so high that they will not be seen as an ‘acceptable cost of doing business’. The changes include the following:
- Companies – Maximum pecuniary fines or penalties for most contraventions increase to the greatest of:
(a) $50 million (a five-fold increase on the current amount of $10 million);
(b) if the court can determine the value of the benefit obtained from the contravention – 3x the total value of that benefit (no change from current); and
(c) if the court cannot determine the value of the benefit obtained – 30% of Australian connected group turnover during the ‘breach turnover period’ (a potentially unlimited increase on the current maximum of 10% of group turnover for a 12 month period).
- Individuals – Maximum pecuniary penalties or fines for most contraventions for individuals increase to $2.5 million per contravention (up from $500,000 for civil contraventions or 2,000 penalty units (currently $444,000) for criminal cartel offences). In addition, of course, individuals involved in criminal cartel offences can go to jail for up to 10 years.
There are other changes proposed, and important definitions to be aware of, which we covered in our previous article here.
Introduction of penalties for unfair contract terms
The ACCC has for some time complained that, without the threat of penalties, too many businesses ignore the UCT regime and continue to use standard form contracts that contain unfair terms. If passed, the Bill will change this by imposing the penalty regime described above for including, applying or relying on unfair contract terms in standard form consumer or small business contracts.
The proposed changes can be summarised as follows:
- Prohibition and multiple contraventions: The Bill prohibits contracting parties from including, applying or relying on unfair contract terms in standard form consumer or small business contracts. These prohibitions could be contravened multiple times in respect of the same contract if it contains multiple unfair terms, or if a term is relied upon on multiple occasions.
- Pecuniary penalties: The ACCC will now be able to seek pecuniary penalties for each contravention of the UCT regime. The potential cost for failing to review standard form contracts could be eye-watering.
- Broader court powers: The ACCC will now also be able to seek orders to restrain companies 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 seek orders to disqualify individuals involved in contraventions from managing a corporation.
- ‘Small’ businesses no longer so small: The definition of ‘small business’ will be expanded so the regime will apply to protect businesses with fewer than 100 employees or an annual turnover of less than $10 million. In addition, the regime can now apply no matter how large the value of the contract is, significantly widening the scope and application of the UCT regime.
Haven’t I heard this before?
The proposal to impose penalties for unfair terms in standard form contracts has been around for some time. Under the previous Liberal government, much the same proposals had reached the second reading stage in the House of Representatives but did not pass prior to the dissolution of Parliament before the Federal election. Labor, however, has stated that it is committed to these changes. Given that the changes to the UCT regime are essentially the same as proposed by the Liberals, it seems likely the Bill will pass both houses – unless the Liberals and crossbench both oppose the increased penalties.
How long do we have to get ready?
If the Bill passes, the changes to penalties and fines will come into effect upon Royal Assent.
The changes to the UCT regime will come into effect 12 months after Royal Assent, giving businesses a year to review and amend their standard form contracts before penalties for unfair terms apply.
How can we help?
It is critical for businesses to review and, if necessary, redraft their standard form contracts to ensure they do not fall foul of the UCT regime.
We have dedicated teams that can assist with this review and with drafting effective clauses that will not contravene the UCT regime. Please contact us if you would like more information about the services we provide.
This article was written by Teresa Torcasio, Partner, Richard Westmoreland, Partner and Zoe Vise, Associate.