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5 December 202213 minute read

Changes to competition and consumer law penalties and the unfair contract terms regime

On 27 October, Australian Parliament passed the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Bill), which seeks to strengthen the existing unfair contract terms regime (Regime) under the Australian Consumer Law (ACL) (made under the Competition and Consumer Act 2010 (Cth) (CCA)) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), and introduce a more stringent penalty regime for breaches of the CCA.

The Bill is currently awaiting Royal assent, with the amendments to the Regime proposed to take effect 12 months after assent is given. The changes to the Regime will apply not only in respect of new contracts commencing after the amendments to the Regime take effect, but also to any contracts that are renewed or varied after that date.

What does this mean for businesses?

Businesses have 12 months from the date the Bill obtains Royal assent to ensure compliance. After this, penalties will apply to businesses who enter into new contracts or vary or renew existing contracts that contain unfair terms.

In order that businesses are adequately prepared for these changes, they should:

  • assess whether the changes to the Regime apply to any existing or future standard form contracts, or any template contracts they use;
  • investigate the terms (or types of terms) that courts have previously declared void; and
  • if the changes to the Regime will apply, take steps to review and update their standard form contracts to ensure that those contracts do not contain any terms that are, or could be deemed to be, unfair – this could require an uplift to existing template contracts, or a variation to existing customer contracts.
Unfair Contract Terms

The key changes as between the existing Regime and the Regime strengthened by the Bill are set out in the table below.

Key Aspect

Current Regime

New Regime

Application

Applies to ‘standard form contracts’ with individual consumers and small businesses.

Definition of ‘Small Business’

Under both the CCA and ASIC Act, a business with:

  • up to 20 employees; and
  • annual turnover of up to AUD10 million.

Under both the CCA and ASIC Act, a business with:

  • up to 100 employees; and
  • annual turnover of up to AUD10 million.

Financial threshold (minimum up-front price payable) for the Regime to apply

Under the CCA, less than:

  • AUD300,000; or
  • AUD1 million of the contract is for longer than 12 months.

Under the ASIC Act, less than AUD3 million.

Under the CCA, no financial threshold.

Under the ASIC Act, AUD5 million.

Definition of ‘Standard Form Contract’

That which is not typically the subject of negotiation between parties (or is provided to a customer on a ‘take it or leave it’ basis).

A contract may be considered a standard form contract, even if a customer is provided with an opportunity to negotiate changes or is able to select a term from a range of options.

Treatment of unfair terms

Terms declared by a court to be unfair will be void (and unenforceable).

Inclusion of, or reliance or purported reliance on unfair terms is unlawful and prohibited and penalties will apply to each unfair term that exists.

Penalties

No penalties associated with the existence of unfair terms.

Up to the maximum penalties permissible under the CCA or the ASIC Act, depending on the type of contract (see below).

The New Penalty Regime

The Bill also seeks to strengthen the existing penalty regime under the CCA, applicable not only to breaches of the Regime, but also to breaches of the ACL, cartel conduct, anticompetitive behaviour and misuse of market power, as summarised in the table below.

Key Aspect

Current Regime

New Regime

Penalty for breach of CCA (Companies)

The greater of:

  • AUD10 million (companies); and
  • 3 times the value of the benefit obtained from the relevant breach; or
  • where the value of the benefit cannot be determined, 10% of the company’s annual turnover in the 12 months preceding the relevant breach.

The greater of:

  • AUD50 million (companies); and
  • 3 times the value of the benefit obtained from the relevant breach; or
  • where the value of the benefit cannot be determined, 30% of the company’s adjusted* turnover during the ‘breach turnover period’.**

* Calculated pursuant to a proposed new section 23(4) of the CCA and section 12BF(7) of the ASIC Act (as applicable).

** the period from when that company began committing the breach, to when it ceased (with a deemed minimum period of 12 months).

Penalty for breach of CCA (Individuals)

AUD500,000

AUD2.5 million

The application of these new maximum penalties will be balanced with other relevant factors by a court, who will determine the appropriate penalty based on the circumstances of each case.

How can DLA Piper help?

DLA Piper is well-placed to assist clients who contract with individuals and small businesses, in undertaking:

  • an assessment of the applicability of the new changes to clients’ contracts (both templates and existing contracts); and
  • a thorough review of their relevant contracts.

We can help clients ensure that any clauses that are unfair, or that may be at risk of being deemed unfair, are amended to ensure compliance with the Regime, while still achieving adequate protection for our clients’ businesses.

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