Unfair Contract Terms (UCT) reform back on the agenda!

04 August 2022

Last year we waited with much anticipation to see whether the changes to the unfair contract terms regime contained in the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 (TLA Bill) would come into law.

The TLA Bill had only reached the second reading stage in the lower house before Parliament dissolved prior to the Federal election. When Parliament is dissolved, all Bills which have not yet passed both houses become lapsed Bills. These lapsed Bills effectively cease to exist, and it becomes the responsibility of the new Government to introduce any Bills it wants to enact to reflect those lapsed Bills.

In this article, we quickly recap the key reforms that were contained in the TLA Bill and provide an update on recent developments.

What would have been the effect of the TLA Bill?

As we foreshadowed in a previous article (which related to an exposure draft of the TLA Bill that was revised slightly before being introduced to Parliament), the TLA Bill, if passed, would have introduced the following amendments to the unfair contract terms (UCT) regime:

  1. Prohibition and multiple contraventions: Contracting parties would be prohibited from including, applying or relying on unfair contract terms in standard form consumer or small business contracts. It would 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 could order pecuniary penalties for contracting parties that breached the UCT laws (either in response to an application by a contracting party or the ACCC). Each contravention of the UCT laws (which, noting point 1, could multiply quickly) would be subject to the current Australian Consumer Law (ACL) penalty regime, which would have the potential to produce eye-watering penalties.
  3. Broader court powers: As well as pecuniary penalties, courts would be afforded additional powers to respond to breaches of UCT laws. This would include 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. Expanded scope for small business contracts: The definition of ‘small business’ would be expanded, meaning that the UCT regime would 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’ would be removed, significantly widening the scope and application of the UCT regime.

It is worth noting that while the exposure draft proposed to include a rebuttable presumption (whereby a term would be found unfair if the same or a similar term used in the same industry had been found to be unfair), as we covered in our previous article, this was not ultimately captured in the TLA Bill that was introduced to Parliament.

Will the Government introduce a new Bill?

Yes. The Government announced at its first sitting on 28 July 2022 that it will introduce a new Bill to legislate against unfair contract terms at the upcoming Parliamentary sitting period.

What impact will these changes have on my business?

The new Bill is yet to be released, and it remains unknown whether it will be the same or similar to the TLA Bill. While it would be reasonable to expect that the new Bill will closely resemble the TLA Bill, the change in Government may have altered this position.

For now, businesses should be aware that the new Government is keen to follow through on its election promise to introduce new laws to protect small businesses and consumers, having criticised the former Government during its first sitting last week for taking ‘nine long years’ to make progress on UCT reform.1

How can we help?

We have a dedicated consumer law team that can assist you with contract preparation and review to ensure that you comply with the UCT regime, and can provide you with related advice on the current UCT regime and the potential impacts of any changes. Please contact us if you would like more information about the services we provide.

This article was written by Teresa Torcasio, Partner, Zoe Vise, Associate and Erin Upson, Law Graduate.

Commonwealth, Forty-Seventh Parliament First Session, House of Representatives, 28 July 2022, 52 (Julie Collins, Minister for Small Business).

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