- For contracts to which the ACL applies, the laws would remove the financial thresholds that currently apply to relevant contracts. Instead, the laws would apply to any standard form contract with a 'small business'. The definition of small business is expanded to capture entities with up 100 employees (increased from 20) or with up to $10 million annual turnover.
- For contracts to which the ASIC Act applies, the laws would increase the financial threshold from $3 million to $5 million and the definition of small business is expanded to capture entities with up to 100 employees (increased from 20) or with up to $10 million annual turnover. This threshold increase aligns with the changes the Australian Banking Association committed to make to the definition of small business under the Banking Code of Practice. However, certain contracts would be excluded from the new UCT regime, including operating rules of licensed financial markets (such as ASX Limited) and licensed clearing settlement systems.
The laws would apply to standard form contracts entered into or renewed 12 months after the laws take effect, or to terms within contracts that are varied following that date.
Penalty increases under the CCA and ACL
The UCT Reform Bill also proposes the following increases to the maximum penalties under the CCA and the ACL.
A corporation
- $10 million;
- Three times the value of the benefit obtained; or
Where the value of the benefit cannot be determined, 10% of annual turnover in the 12 months preceding the act or omission.
- $50 million;
- Three times the value of the benefit obtained; or
Where the value of the benefit cannot be determined, 30% of the adjusted turnover during the breach turnover period for the act or omission.
An individual
The introduction of a 'breach turnover period' will mean the relevant period for the penalty calculation will cover the period from when a business is found to have begun committing a contravention to when it ceased doing so. The minimum period will be 12 months. In many cases the 'breach turnover period' may be longer than the period used to determine maximum turnover in the current law (which is 12 months immediately prior to the breach).
These changes substantially increase the penalties applicable to contraventions of the CCA, including cartel conduct, anticompetitive agreements, misuse of market power and consumer law contraventions including unfair contract terms. This comes after changes were introduced in 2018 to increase penalties for contraventions of the ACL (discussed here), and against the backdrop of a general trend for higher penalties (discussed here).
No changes are proposed to the penalty amounts under the ASIC Act.
Commencement and transition period
The UCT Reform Bill is intended to commence 12 months after the bill receives Royal Assent. This 12-month period is intended to provide businesses time to review and amend relevant contracts in preparedness for the new provisions. The new unfair contract terms laws will apply to standard form contracts entered into following commencement of the reforms, as well as to any existing standard form contracts that are renewed after commencement.
The increased penalties are proposed to take effect from the date the UCT Reform Bill receives Royal Assent.
Next steps
We recommend using this time to prepare for the changes and making sure your business has its standard form contracts in order. The broader scope of the amended UCT regime, as well as the substantial increase to financial penalties under the CCA, heightens the consequences of contractual terms being found 'unfair'.
You can also read our coverage of what else to expect from the Government on competition and consumer laws in our two-part series: accessible here and here.
Unfair contract terms reforms: expanded scope and penalties
The UCT reforms are proposed to come into effect 12 months from Royal Assent.
Now is the time to ensure your business' standard form contracts are compliant.
