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Commercial Matters

Unfair Contract Term Reforms

Posted by Richelle Massey on 16 Dec 2020

Assisted by Jason Vo

The unfair contract law regime in the Australian Consumer Law is set for reform following Commonwealth, state and territory consumer affairs ministers agreeing on 6 November 2020 to strengthen the existing protections.

Unfair Contracts

Currently under the Australian Consumer Law, a term in a standard form consumer or small business contract will be unfair if:

  • It would cause a significant imbalance in the parties' rights and obligations under the contract;
  • It is not reasonably necessary to protect the legitimate interests of the party that will benefit from the term; and,
  • It would cause detriment to a party if the term were applied or relied on.

There has been some concern about the effectiveness of the current regime as there are no penalties for non-compliance and there is uncertainty around some of the scope of the protections.

So, what are the reforms?

Penalties

One of the proposed reforms is to make unfair contract terms unlawful and give courts the power to impose a civil penalty. At the moment courts cannot impose civil penalties and the proposed penalties to be introduced as part of this reform are not yet known.

Expansion of application

The ministers have agreed to:

  • Increase the eligibility threshold for the protections from less than 20 employees to less than 100 employees, and introduce an annual turnover threshold of less than $10 million as an alternative threshold for determining eligibility; and,
  • remove the requirement for the upfront price payable under a contract to be below a certain threshold in order for the contract to be covered by the unfair contract term protections.

This change will expand the reach of the unfair contract term regime and result in more businesses being able to rely on the protections they afford.

Greater flexibility for the court

The court will have the ability to provide more flexible remedies when it declares that a particular contract term is unfair. 

Definition of standard form contract

The intention is to provide greater clarity around what constitutes a standard form contract, for example, factors such as repeat usage of a contract template and whether the small business had an effective opportunity to negotiate the contract will be relevant.

Exemptions

The proposed reforms will make clear that certain clauses that include ‘minimum standards’ or other industry-specific requirements contained in relevant legislation will be exempt.

What is the next stage of the reform process?

The treasury will now develop draft legislation to amend the current unfair contract term provisions. Coleman Greig will monitor the implementation of the proposed reforms and provide updates as they arise, so please stay tuned.

What now?

In preparation of any reforms, businesses that use standard form contracts when dealing with consumers or small businesses should have them reviewed to ensure that they do not contain any unfair contract terms.

If you have a query relating to any of the information in this article, please do not hesitate to contact a member of Coleman Greig’s Commercial Advice Team, who would be more than happy to assist you today.

Disclaimer: This information is for information purposes only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. Please contact us if you wish for us to advise you on any issue you may have in your circumstances.

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