Unfair contract terms and the transport sector - there's still time to update your standard terms and conditions

In brief - New provisions to take effect on 9 November 2023

It has been over 6 years since the unfair contract terms protections in the Australian Consumer Law (ACL) and Australian Securities and Investments Commission Act 2001 (ASIC Act) were first extended to small businesses.

In our earlier article, 'Unfair contract terms: repercussions for the transport sector', we identified the types of standard form transport and logistics contracts which fall within the scope of unfair contracts terms provisions of the ACL. For example, some logistics contracts, such as contracts of marine salvage and towage, and charter parties, are specifically exempt from the unfair contract provisions under section 28 of the ACL. That has not changed. However, pursuant to the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Amendment Act), further and significant changes will take effect on 9 November 2023.  

This short article focuses on some of the more significant changes to the ACL and their application to the transport sector (noting that the ASIC Act is concerned only with financial products or services contracts), which includes many small businesses.

When is a term 'unfair'?

When considering whether a term is unfair, a Court will take into account the transparency of the term and the contract as a whole. In particular, they will consider whether the term:

• causes a significant imbalance in the parties' rights and obligations;

• would cause detriment to a party if it were to be relied on;

• is not reasonably necessary to protect the legitimate interest of the party who would be advantaged by the term; or

• lacks transparency in its formatting or the way in which it and the contract are presented.

Those essential considerations remain unchanged. Similarly, the terms and conditions which are excluded from the rules about unfair contract terms still include those which: 

• define the main subject matter of the contract;

• set the upfront price payable under the contract; and 

• are otherwise required or permitted by law.

Principal amendments

However, some of the principal amendments to the unfair contracts terms regime in the ACL, and which are made by the Amendment Act, relate to the circumstances in which they will operate. They have been significantly broadened.

For example, and most relevantly, a contract will be a 'small business contract', and therefore subject to the unfair contracts terms regime, if:

• relevant to the transport sector, the contract is for a supply of goods or services; and
• at least one party to the contract satisfies one or both of the following conditions:
  • the party makes the contract in the course of carrying on a business and at a time when the party employs fewer than 100 persons (increased from the current limit of 20 people); and/or
  • the party’s turnover, at or before the time when the contract is made, is less than $10,000,000 (whereas the current provisions focus on the price payable for the subject contract).

This will likely expand the circumstances when a transport operator's standard form terms and conditions will fall within the scope of the unfair contracts terms regime and in particular the contracts used by industry participants such as logistics operators, customs brokers, freight forwarders, road and rail carriers. 

Further, when counting the number of persons that a person employs for the purposes of the provisions, clarity has been provided by the legislation in that:

• a casual employee is not to be counted unless employed on a regular and systematic basis; and
• a part time employee (including a part time casual employee) is to be counted as an appropriate fraction of a full time equivalent.

The definition of a 'standard form contract' has also been clarified in that it may exist despite the existence of an opportunity for a party:

• to negotiate changes that are minor or insubstantial in effect;

• to select a term from a range of options; or

• to another contract or proposed contract to negotiate terms.

New Penalties

Whereas currently the remedies available from a Court are limited to ordering that an unfair contract term is void, by the Amendment Act the Court will have additional powers including:

• to redress, in whole or in part, loss or damage that has been caused to any person by the unfair contract term; or

• to prevent or reduce loss or damage that is likely to be so caused; 

by making orders inter alia which

• declare the whole or any part of the contract, or a collateral arrangement void; or

• vary the contract or such collateral arrangement as the court thinks fit.

In addition to making orders relating to the contract or a collateral arrangement, the Court can also issue significant pecuniary penalties depending on the breach, with a maximum up to $50 million, for a body corporate. Although it is likely the regulators and the Court will direct their interest, at least initially, to larger players in the various sectors to which the unfair contracts terms regime apply, this is a significant change to the current position which exposes operators beyond a mere liability to their customers, but possibly also to civil penalties. 

To what contracts does the regime apply?

The unfair contracts terms regime will continue to apply to all standard form contracts with consumers and small businesses which were entered into, renewed or varied on after 12 November 2016.

There's still time to 'get your shop in order'

If they have not done so already, all transport sector participants who rely on standard terms and conditions in their dealings with customers and who fall within the expanded definition of a 'small business' should use the opportunity over the coming months, and before 9 November 2023 to:

• appreciate  the unfair contracts terms regime has been significantly broadened and many additional customers will now fall within its scope;

• appreciate the risks for transport operators have now changed, in that not only can the Court order the entire contract to be void (rather than just the unfair contract term itself), but also, significant penalties can be awarded if a breach has occurred;

• consider whether any amendments or updates to their standard form contracts is required;

• use the opportunity now to remove, modify or clarify any potentially unfair terms;

• consider whether their applicable insurance policy will provide cover in the event of a civil penalty being awarded against them for breach of the unfair contract terms provisions in the ACL (interestingly, since our earlier article, insurers are now also subject to the unfair contract terms provisions of various legislation whereas previously, they did not apply to terms regulated by the Insurance Contracts Act 1984); and

• continue to adopt an open and transparent approach with customers to ensure their terms and conditions are properly incorporated and brought to their customers' attention before services are provided.