Diritto commercialeContenzioso commercialeNotizieBe prepared – Significant Changes to the Unfair Contract Regime commencing November 2023

There has been a lot of movement in the equality of parties rights and obligations under contract over the years and finally, with the upcoming changes detailed below, we are able to potentially declare some contracts as unfair.

These changes have been introduced in the wake of the Federal Court of Australia’s recent judgement handed down against FujiFilm Business Innovation Australia Pty Ltd. The Court found, amongst other things, that Fuji’s contracts unfairly allowed them to unilaterally vary the price charged to consumers, automatically renew the contract without notifying the consumer and referenced extraneous documents that were not transparent to the consumer.

The current position in relation to ‘unfair contract terms’ (‘UCT’) in standard form consumer and small business contracts is well established in Australia under the Legge sulla concorrenza e sui consumatori 2010 (Cth) (‘CCA’).

The key factors in determining if a term will be declared unfair include if:

1. it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
3. it would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

Whilst the current unfair contract terms regime is well entrenched within Australian law, the Australian Competition and Consumer Commission (‘ACCC’) has more recently identified a growing prevalence of unfair terms seeping into standard form contracts and consumers being left without adequate legislative protections.

In response to this inadequacy, the ACCC has prioritised UCTs by enacting into legislation the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth).

Commencing from 10 November 2023, the unfair contract term ‘regime’ will be expanded to capture a multitude of new contracts whilst also introducing harsher penalties for those relying, or purporting to rely, on an UCT.

Under the current regime, if a Court finds that a term is an UCT, then the term will be deemed void and unenforceable.  As from 10 November 2023, this legislative protection will be expanded to prevent persons from entering into, applying or relying on (or purporting to apply or rely on) an UCT.  Each unfair term contained in a contract will be considered a separate contravention and the penalties outlined in Table 2 below will apply.

The changes have been introduced to empower the Courts with more extensive remedies in the face of UCT. Currently, the Court may make orders where a person has suffered, or is likely to suffer, loss or damage from an UCT; and/or to void, vary or refuse to enforce part of all of the relevant contract. The new legislation will allow the Court to make orders it considers appropriate to prevent or reduce loss or damage that has, or may be, caused by the UCT, including to existing contracts that contain the same or similar terms.

Some of the major changes to the UCT Regime are outlined below.

Figure 1 –  Major UCT changes from 10 November 2023

Current law	New law
The Court may injunct a party from applying o relying on (or purporting to apply or rely on) a term of a contract that has been declared unfair.	Unless a party proves otherwise, a contract term will be presumed unfair if the same or a substantially similar term has been deemed unfair in another proceeding in similar circumstances (e.g. proposed by the same entity or in the same industry). In addition to current injunction powers, the Court may injunct a person from: entering future contracts that contain the same or a substantially similar term; and/or applying or relying on a term in any existing contract with the same or a substantially similar term, whether or not that contract is before the Court.
‘Small business’ threshold is currently: fewer than 20 employees; and either: upfront price payable under the contract is less than $300,000; o $1 million if the contract is longer than 12 months.	‘Small business’ threshold has been expanded to: fewer than 100 employees; o annual turnover of less than $10 million.
In determining whether a contract is a ‘standard form contract’, the Court must take into account a number of matters including: whether one party was required to reject or accept the terms of the contract in the form it was presented; or was given an effective opportunity to negotiate the terms of the contract.	In addition to current matters, the Court must consider whether a party has used the same or a similar contract before, and the number of times this has been done. The Court must not consider: whether a party had an opportunity to negotiate minor or insubstantial changes; whether a party had an opportunity to select a term from a range of options; o the extent to which a party to another contract or proposed contract was given an effective opportunity to negotiate terms of the other contract or proposed contract.

Figure 2 –  New penalties imposed under the new UCT regime

New penalties
A pecuniary penalty may be imposed if a person proposes, applies, relies, or purports to apply or rely, on a UCT amounting to: •           for a body corporate – the greater of (i) $10 million, (ii) three times the value of the benefit of the UCT or (iii) 10% off annual turnover during the preceding 12-month period; or •           for an individual – $500,000.

These imminent changes are wide reaching, and demand businesses take proactive steps in reviewing their contracts to ensure they are not caught out in light of the raft of new changes.

Should you wish for your existing commercial contracts to be reviewed and amended or if you require advice regarding a new contract you are negotiating, please contact Simon Sorockyj, Special Counsel or Lloyd Armstrong, Lawyer of our Melbourne Commercial Law team for assistance.