CN07 - Unfair contract terms reform on the horizon
01 March 2022
A new era of unfair contract terms enforcement is on the horizon. On 9 February 2022, a Bill was introduced into Parliament proposing changes to Australia's unfair contract terms laws that apply to consumer and small business contracts. Among the proposed changes is the introduction of new prohibitions that will attract significant penalties if violated.
Key takeaways
- A Bill presently before Parliament will (if passed) amend the unfair contract terms provisions in Part 2-3 of the Australian Consumer Law ("ACL") and Part 2 (Division 2, Subdivision BA) of the Australian Securities and Investment Commission Act 2001 (Cth) ("ASIC Act").
- Following a period of consultation on proposed reforms which were published in an exposure draft in August 2021, the Bill marks the first step toward a significant legislative shift in unfair contract terms enforcement.
- Key changes include: introducing new prohibitions that attract significant penalties; a broader range of remedies for courts to impose in relation to unfair terms; and expanding the regime to a larger pool of small business contracts. Ahead of the Bill being enacted, businesses should actively consider how the proposed changes will impact them.
Most significantly, in a bid to strengthen the enforcement provisions and remedies under the regime, the Bill introduces new prohibitions against:
Each of these prohibitions can be contravened multiple times in relation to the same contract or even in relation to the same unfair term (if relied on more than once). Each contravention would attract a pecuniary penalty – presently the maximum pecuniary penalties for corporations:
The Bill also:
The Bill's introduction to Parliament follows a period of consultation on proposed reforms published in an exposure draft in August 2021 (see our earlier publication on the exposure draft here). Notably, unlike the exposure draft, the Bill does not include a rebuttable presumption that terms are unfair if they are the same or similar to terms previously found to be unfair, and proposes that the new regime commence 12 months from royal assent (as opposed to 6 months).
The Bill is presently before the House of Representatives and must also pass the Senate before becoming law.
The reforms are proposed to come into effect 12 months after the Act receives royal assent, allowing a sufficient period of time for standard form contracts subject to the new regime to be reviewed and, if necessary, amended.
Before the Bill becomes law and the penalty provisions take effect, businesses should:
With thanks to Rubaina Sehgal of Ashurst for her contribution.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.