On 28 September 2022, the Federal Parliament tabled the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill) which, if passed, will:
- significantly increase the penalties and fines that can be imposed under competition and consumer laws;
- make it a contravention of the Australian Consumer Law (ACL) to include, apply or enforce terms in standard form contracts that are ‘unfair‘. 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; and
- make it easier for automotive dealers to seek the protection of the current unfair contract provisions in the ACL.
Increased penalties
The Exposure Draft Explanatory Material outlines that the proposed new penalty regime ‘will ensure the price of misconduct is high enough to deter unfair activity and improve competition in Australia for the benefit of consumers and small businesses’. This is in response to common practice where larger corporations are willing be penalised under the current regime as an acceptable cost of doing business instead of changing their operations as intended by the legislation.
The penalties proposed by the Bill would be applicable to both anti-competitive conduct and consumer law penalties. They include increases to the maximum pecuniary fines or penalties for most contraventions of the ACL or Competition and Consumer Act 2010. For companies the maximum pecuniary fines or penalties for most contraventions increase to the greater of:
- $50 million (a five-fold increase on the current amount of $10 million);
- if the Court can determine the value of the benefit obtained from the contravention, then three times the total value in number; and
- if the Court cannot determine the value of the benefit obtained from the contravention, then 30% of all 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). For individuals, the maximum pecuniary penalties or fines for most contraventions 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, individuals involved in criminal cartel offences can go to jail for up to 10 years.
Unfair contract terms (UCTs)
Under the current unfair contract provisions in the ACL, a term of a contract is generally considered to be unfair in a standard form consumer or small business contract if it would:
- cause significant imbalance between the contracting parties positions;
- not be reasonably necessary to protect legitimate interests of a party who would benefit from the terms; and
- cause detriment to a party if it were applied or relied on.
The Bill would prohibit a contracting party from including, applying or relying on UCTs in standard form or small business contracts. This differs from the present position in which:
- UCTs are deemed to be void (as opposed to being prohibited); and
- many companies have chosen to leave UCTs in their standard form contracts or small business contracts, placing the onus on more vulnerable parties to challenge UCTs and have them declared void.
Parliament’s intention is to create a significant deterrent to companies that are traditionally in the stronger bargaining position from including or relying on UCTs in their business operations and one that has practical value to more vulnerable parties, including Dealers.
Importantly for Dealers the Bill also includes the following reforms:
- definition of a ‘small business’ to include businesses that:
- employ fewer than 100 employees (an increase from fewer than 20 employees); or
- generate an annual turnover of less than $10 million;
- removal of reference to a contract price threshold for the UCT provisions to apply;
- orders that a Court can make in addition to declaring UCTs void. For example, Courts would be positioned to make orders to redress loss or damage that has been caused or that is likely to be caused by UCTs; and
- provision of more detail as to what constitutes a ‘standard form contract’.
The problem for Dealers with the current unfair contact laws is that very few dealers can access them due to the ‘20 employee‘ limitation applying to the affected party.
The proposed changes align with the recommendations made by the Australian Competition & Consumer Commission to the Parliamentary Joint Committee in September 2018 that the definition of ‘small business’ in current legislation may not capture many motor vehicle dealers and that the thresholds to what constitutes a ‘small business’ should be increased. 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.
This article was written by Evan Stents, Partner, Teresa Torcasio, Partner and Richard Westmoreland, Partner.
