Significant Changes to Unfair Contract Terms

18 October 2023

From 9 November 2023, Australia’s unfair contract terms regime under the Australian Consumer Law is changing substantially including:

  • the introduction of new unfair contract term prohibitions;
  • creating new civil penalty provisions for breaches of the unfair contract term regime;
  • clarifying and expanding the powers of a Court; and
  • extending the application of the regime to a greater number of contracts.

Until 9 November 2023, the unfair contract terms regime applies to small business contracts where one of the parties to a contract is a business that employs fewer than 20 employees, and the upfront contract value threshold is below $300,000.

From 9 November 2023, a contract under the Australian Consumer Law will now be considered a ‘small business contract’ where a party to the contract:

  • is a business that employs fewer than 100 employees, including part-time employees (to be counted as an appropriate fraction of a full-time employee) and excluding casual employees (unless regular and systematic); and/or
  • is a business that has a turnover for the preceding year of less than $10 million.

Given these changes, the unfair contract laws will now apply to a much larger pool of standard form contracts than before.

Parties will now be prohibited from proposing, using, or relying on unfair terms in a standard form contract. Courts will now have the power to impose a civil penalty on the party that is responsible for proposing, applying, or relying on a standard form contract term that it determines is unfair under the Australian Consumer Law.

  • For a body corporate, the maximum penalty for breaches of the unfair contract term provisions will be the greater of:
    • $50 million;
    • three times the benefit obtained by the body corporate either directly or indirectly, provided the court can determine the value; or
    • 30% of the body corporate’s adjusted turnover during the breach period.
  • For an individual, the maximum penalty is $2.5 million.

Previously, if Courts found a term to be unfair, the term was automatically void. Additional remedies are introduced granting the Courts greater discretion in determining remedies such as issuing injunctions and orders to void, vary, or refuse to enforce part or all of the contract to prevent loss or damage.

Disclaimer: This summary is a guide only and is not legal advice. For further information, call ECA Legal on (08)62416129 or email ecalegal@ecawa.org.au