Wide-ranging reforms to the existing Unfair Contract Terms (‘UCT’) regime came into effect in November 2023 making unfair contract terms illegal under the Competition and Consumer Act 2010 (Cth). See our previous article here. As such, you may wish to consider or reconsider your standard terms and conditions to reduce the risk of a substantial penalty owing to non-compliance.
The need for reform stemmed from the need to address the unreasonable imbalance of power that may be created by unfair contract terms between contracting parties, to ensure standard contracts are fair and to encourage businesses to take a proactive approach in reviewing their standard form contracts.
What are ‘unfair contract terms’?
They may include terms that:
- allow one party (but not the other) to avoid or limit their responsibilities under the contract
- allow one party (but not the other) to end the contract
- penalise one party (but not the other) for breaching or ending the contract
- allow one party (but not the other) to change the terms of the contract.
- make one party liable for matters which would normally be outside of their control.
- allow the business to exclude or avoid liability for negligence or any representations made before the contract is signed.
Small businesses and the new UCT regime
The reforms have expanded the class of small businesses which are protected by the regime meaning more small businesses than ever before will benefit from the UCT regime. A small business is now defined as having a turnover of less than $10m for the previous income year or employing less than 100 people.
The contract value threshold to bring a claim under the UCT regime has also been removed, historically sitting at around $300,000 AUD further demonstrating a commitment to enabling a much greater and wider range of parties to benefit from the protections provided under the regime.
What are the potential areas of concern for those in the hire or rental industry?
For terms of business relating to hire terms, some common terms to look out for and consider their operation, scope or wording, include:
- Liability / indemnity provisions
- Unilateral termination
- Security deposits
- Variation of terms
- Automatic renewals
- Pricing and payment terms (including credit terms)
- Penalty provisions / charges
When reviewing your terms and conditions try to keep in mind that:
- the language should be clear and easy to understand so avoid using legal or technical jargon;
- the document should be transparent in that important conditions are flagged during your initial discussions and as early as possible in your documentation instead of buried in the fine print;
- you should not include any terms or conditions which limit any guarantee rights your customer may have or seek to exclude any liabilities attaching to the business in respect of comments made/discussions had prior the terms and conditions being provided.
Potential Consequences
If your terms and conditions contain ‘unfair contract terms’, consequences of seeking to enforce the terms of, or operate under them, can include:
- Significant monetary penalties including up to $50 million for businesses;
- An Order finding that that particular unfair contract term or indeed the entire contract is void (and therefore, not enforceable);
- An Order requiring a business to modify/alter the contract;
- Issuing of an injunction in respect of that particular contract
- Refunds, returns of property and provision of services to be ordered at the business’s expense
Given the above, at best, in the event the Court, a Mediator or indeed, any other independent third-party determine a specific contract term to be unfair, a business will be left with a specific term which is held to be unenforceable, or an Order being issued to the effect that the offending term must be rewritten. As such, it’s a good time to look over and update your terms of engagement and avoid the potential risk of a monetary penalty.
Bellrock Advisory can assist with a review of your T&C to ensure that they comply with Unfair Contract Terms regime, contain appropriate risk transfer initiatives and dovetail your insurance programme’s terms and conditions.
