In brief - The passing of the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 means businesses (including previously uncaught 'small businesses') should review their standard form contracts to ensure they do not contain unfair contract terms and where they may, look to amend them.
The Bill passed on 27 October 2022, and expected to receive Royal Assent shortly, will result in changes to the Competition and Consumer Act 2010 (Cth) (CCA) and the mirrored provisions in the Australian Securities and Investments Commission Act 2001 (Cth) in two parts:
-
the introduction of penalties and other changes relating to unfair contract terms in standard form contracts with consumers and small businesses; and
-
significant increases in maximum penalties for breaches of certain provisions of the CCA, including the Australian Consumer Law (ACL).
Previously, courts could declare specific terms of a contract unfair and therefore void; however, they were not prohibited and the court could not impose any penalties on businesses that included them in standard form contracts. In practice, the law lacked a real deterrent.
Now courts will be empowered to make more flexible orders to prevent or reduce loss or damage in relation to the relevant unfair contract term, in addition to the power to impose civil penalties for the use of or reliance on an unfair contract term.
Increase to the eligibility threshold for small businesses
Critically, the Bill increases the limits making up the 'small business threshold' thus increasing the number of businesses and contracts that will have the benefit of the mandatory consumer law protections.
The changes will mean more small business contracts are covered by the unfair contract terms protections found in the ACL, by applying to those with businesses that employ fewer than 100 people or have an annual turnover of less than $10 million, irrespective of the value of the contract.
Outlined below are the changes to the small business threshold:
|
Previous 'small business' threshold
|
New 'small business' threshold
|
|
|
|
The changes to the small business threshold will commence 12 months and one day after the Bill receives Royal Assent (Commencement Date).
The amendments will apply to:
-
new contracts entered into at or after the Commencement Date;
-
existing contracts that are renewed at or after the Commencement Date; and
-
terms of an existing contract that are varied at or after the Commencement Date.
New concept of 'adjusted turnover' and 'breach turnover period'
The Bill includes new consumer law concepts/definitions of 'adjusted turnover' and 'breach turnover period' which will replace the concept of 'annual turnover'.
'Adjusted turnover' means the sum of the value of all the supplies made by the body corporate and its related bodies corporate, within Australia's indirect tax zone, with some exceptions, including intragroup supplies, input taxed supplies and supplies made for no consideration or that are not in connection with the enterprise of the body corporate.
'Breach turnover period' means the beginning of the month in which the body corporate committed or began committing the breach, and the end of the month in which the body corporate ceased committing or was charged with the breach.
As provided above, in the event the court is unable to determine the value of the benefit, the penalty will be based on 30% of the adjusted turnover during the breach turnover period.
Maximum civil penalty increases
Outlined below are the key increases to maximum civil penalties (both for a breach of the ACL, including the unfair contract term provisions, and a breach of a relevant civil penalty provision in Part IV (Anti-competitive conduct) of the CCA):
|
Applicable to
|
Previous maximum civil penalty
|
New maximum civil penalty
|
|
Companies
|
The greater of:
-
$10 million;
-
3x the value of the benefit obtained (if that can be determined); OR
-
if the value of the benefit cannot be determined, 10% of the annual turnover in the 12 months prior to the breach.
|
The greater of:
-
$50 million;
-
3x the value of the benefit obtained (if that can be determined); OR
-
if the value of the benefit cannot be determined, 30% of the adjusted turnover during the breach turnover period (i.e. over the period the breach occurred, with a minimum of 12 months).
|
|
Individuals
|
$500,000
|
$2,500,000
|
The new maximum civil penalty (being five times greater) is a significant increase.
The fivefold increase in the maximum penalty for individuals to $2.5 million is significant given the prohibitions in sections 77A and 77B of the CCA. These provisions prevent companies from indemnifying company officers and individual executives for civil penalties in relation to, relevantly, breaches of Part IV (Anti-competitive conduct) of the CCA, and in respect of legal fees if found liable for a contravention.
The changes to the maximum civil penalties will commence one day after the Bill receives Royal Assent and will apply to conduct that occurs on or after that date.
Businesses should manage their risk around unfair contract terms
The increase to the eligibility threshold for small businesses, as well as the substantial increase in the maximum civil penalties, heightens the risk profile and likelihood of a clause in your standard form contracts being contested by a counterparty and significantly increases the potential costs attached to the consequences of a clause being found to be an unfair contract term.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2024.