The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) now have the ability to carry out investigations into certain standard form contracts entered into on or after 26 October 2018.
This client alert gives a brief overview of the unfair contract terms regime, the ACCC and ASIC’s new ability to carry out investigations in respect of the regime and the implications for businesses.
The unfair contract terms regime
The consumer unfair contract terms regime is set out in the Australian Consumer Law1 (ACL) (and in the Australian Securities and Investments Commission Act 2001 (ASIC Act) with respect to contracts for financial products and services) and has been in effect since 1 July 2010. From 12 November 2016, the regime was extended to cover “standard form contracts” involving “small businesses”, as defined in the legislation (B2B UCT regime).
The consequence of the unfair contract terms regime is that a Court or relevant Tribunal can declare terms in standard form consumer contracts or small business contracts to be unfair and therefore unenforceable. A party to an eligible contract, the ACCC or ASIC has standing to seek a declaration that a term is unfair.
The ACCC’s and ASIC’s expanded investigative powers
Previously, the ACCC and ASIC were restricted in their ability to investigate unfair contract terms because their investigative powers are triggered by “contraventions” or “possible contraventions” of the law and it is not a contravention of the law to include an unfair contract term in a standard form consumer contract or small business contract.
Though limited in terms of compulsory investigation powers in this area, the ACCC has nevertheless been active in enforcing the unfair contract terms regime, as discussed by the writers in previous alerts, including recent articles which can be found by clicking here, here and here.
The Treasury Laws Amendment (Australian Consumer Law Review) Bill 2018 (Bill) gives effect to certain recommendations of the Australian Consumer Law Review Final Report by amending the Competition and Consumer Act 2010 (CCA) and the ASIC Act. The Bill received Royal Assent on 25 October 2018 and commenced the following day, on 26 October 2018.
One of the amendments enables the ACCC and ASIC to undertake investigations to determine whether or not to make an application to the Court for a declaration that a term in an eligible contract is unfair. To achieve this purpose, the amendment to the CCA extends the ACCC’s existing investigation powers under s.155 of the CCA to matters that are relevant to the ACCC “investigating or inquiring into the terms of a consumer contract or small business contract” while the amendment to the ASIC Act enables ASIC to “make such investigations as it thinks expedient into the terms of the contract“.
Under its s.155 powers, if the ACCC has reason to believe that a person is capable of doing so in respect of a matter referred in s.155 of the CCA (which now includes investigations relating to unfair contract terms), the ACCC can require persons to furnish information, produce documents and appear before the ACCC to give evidence. Previously, the ACCC may have relied on the voluntary cooperation of businesses, other sources of information (such as complaints) or on the business in question contravening or possibly contravening another section of the CCA (such as the prohibition against misleading or deceptive conduct).
The ACCC and ASIC may use their investigative powers in relation to eligible contracts entered into on or after the commencement date of the Bill, being 26 October 2018.
What this means for businesses using standard form contracts
It is more important than ever for businesses to regularly review their standard form contracts and remove or amend potentially unfair terms. Businesses may have previously elected to retain potentially unfair terms in their standard form contracts, in consideration of the low likelihood of regulatory action or a counterparty seeking to challenge the term in Court. However, the risk associated with this approach continues to increase.
On 31 August 2018, ACCC Chair Rod Sims stated in his address to the COSBOA National Small Business Summit, amongst other things:
“The Australian Consumer Law currently allows a potentially unfair contract term to be challenged in a court so it can be declared void, but it does not prohibit such a term being included in a contract in the first place.
Companies can include potential unfair contract terms in their contracts and when, and only when, challenged by the ACCC, can companies remove them from their standard contracts. There is little the ACCC can do to hold them to account for prior conduct. Neither can the ACCC issue infringement notices for unfair contract terms.”
The regime has two significant flaws: first, unfair contract terms are not illegal, and second the ACCC cannot seek penalties when the court has declared an unfair contract term void, nor can we issue infringement notices for contract terms that are likely to be unfair.”
These sentiments were reaffirmed by ACCC Deputy Chair Mick Keogh at the National Franchise Convention Legal Symposium on 14 October 2018.
When the B2B UCT regime was introduced in November 2016, the Government committed to reviewing it within two years. Given the views of the ACCC, it would not be surprising to see further changes which seek to penalise businesses for including unfair contract terms in standard form consumer or small business contracts.
This article was written by Teresa Torcasio, Partner and Marian Ngo, Senior Associate.
P: +61 3 8644 3623
E: ttorcasio@hwle.com.au
1Schedule 2 of the Competition and Consumer Act 2010 (Cth)