Unfair Contract Terms

Significant changes to the UCT regimes for business contracts and financial products are now in place. These changes have broadened the scope of contracts captured by the regime and introduced significant civil penalties. 

Businesses that use or enter into standard form contracts are likely to be impacted by the UCT laws, which also affect business-to-business contracts throughout the supply chain. The UCT regime also applies to financial products that are standard-form small business contracts in certain circumstances.

The impact of the new UCT laws on business contracts

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) was passed in November 2022, significantly expanding the scope of the UCT regime under the Australian Consumer Law (ACL) in the Competition and Consumer Act 2010 (Cth) (Act).

The key changes include:          

Broader application to cover more contracts

From 9 November 2023, the UCT regime will apply to standard form business contracts where at least one party satisfies either of the following:

• it has fewer than 100 employees (currently fewer than 20 employees); or
• less than $10 million in annual turnover during the previous financial year.

This expands the scope of the UCT regime to include an even broader range of business contracts and will affect business-to-business contracts throughout the supply chain.

Introduction of significant penalties and expanded court power

In addition to expanding the scope of the regime, the changes also increase the risk profile of including potentially unfair terms in standard form contracts. From 9 November 2023, businesses can receive penalties for contravention of the UCT provisions, with each UCT contained in a contract a separate contravention (making the combined pecuniary penalty potentially very large). Notably, it will be prohibited to:

• make a contract with a UCT (if the UCT was proposed by that person); or
• apply or rely on (or purport to apply or rely on) a UCT.

In alignment with the recently updated maximum penalties in the Act, the new penalties can be up to $2.5 million for individuals, and for corporations the greater of:

• $50 million;
• three times the benefit obtained and reasonably attributable to the breach, if that can be determined; or
• if the value of the benefit cannot be determined, 30% of the corporation’s adjusted turnover during the breach turnover period.

The expanded regime will apply to standard form contracts entered into, renewed or varied from 9 November 2023.

The impact of the new UCT laws on financial products

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) was passed in November 2022, significantly expanding the scope of the UCT regime under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

The key changes include:          

Broader application to cover more financial products

From 9 November 2023, the UCT regime will apply to financial products that are standard-form small business contracts where the upfront price does not exceed $5 million and where at least one party has:

• fewer than 100 employees (currently fewer than 20 employees); or
• less than $10 million in annual turnover during the previous financial year.

This expands the scope of the UCT regime to include an even broader range of financial products.

Introduction of significant penalties and expanded court power

As with the changes to the Australian Consumer Law (ACL) UCT regime, the ASIC Act UCT regime contains significantly enhanced penalties for contraventions of the UCT regime.

The maximum penalty for corporations for a contravention is the greater of:

• 50,000 penalty units (currently $15.65 million);
• the amount of the benefit derived or detriment avoided multiplied by three; or
• 10% of annual turnover subject to a cap of 2.5 million penalty units (currently $782.5 million).

Learn more about unfair contract terms for financial products and the potential risks for insurance contracts.

We regularly work with clients to review and update standard form contracts to minimise risks associated with unfair contract terms while balancing legitimate business interests to ensure your business is protected and compliant.

We have significant experience working with businesses to minimise regulatory risk under the Australian Consumer Law and the ASIC Act in relation to standard terms of trade and business contracts. 

We also assist businesses with tailored training for in house legal teams, executives, COOs, management and commercial contract managers to ensure your organisation is across the application of UCT laws in your business to minimise risk of prosecution.