Substantial New Penalties and Reforms to Unfair Contract Terms Laws

For some time now under the Australian Consumer Law, where a term of a standard form consumer contract (i.e. one where an individual is acquiring a financial product or service under the contract wholly or predominantly for personal, domestic or household use or consumption) or a standard form small business contract is found to be unfair then that term is void.

However, late last year new Federal legislation was passed, which will come into effect from 10 November 2023 making the following significant changes:

1. For the first time substantial penalties will be imposed if a standard form
consumer contract contains an unfair term;

2. For a corporation the maximum penalty will be the greater of:

* $50 million
* three times the value of the benefit to the company
* 30% of the corporation’s turnover during the offence period

and for an individual the maximum penalty will be $2.5 million;

3. Previously, a standard form contract meant one offered on a “take
it or leave it basis” but it will now extend to a contract which includes

         one where insignificant changes have been negotiated; and

4. The unfair contract terms protections will be expanded to cover small
business contracts where the business employs fewer than 100 people
(up from 20).

These reforms constitute a major shift in favour of consumers and small businesses when it comes to standard form contracts. Corporations and businesses issuing such contracts will now have to carefully review them before 10 November 2023 in order to avoid the possibility of hefty penalties. By the same token, consumers and small businesses will have much more clout when wanting to negotiate terms in a standard form contract.

February 2023