Top things legal teams need to know about changes to unfair contract terms regime in Australia this week

The new changes to the unfair contract term (UCT) regime in the Australian Consumer Law now apply to businesses across Australia.

The latest changes mean that businesses are no longer allowed to propose, use, or rely on UCTs in standard form contracts with consumers or small businesses. The regime has also extended the meaning of ”small businesses” to include companies with less than $10 million annual turnover or 100 employees.

Businesses can now be penalised for using UCTs, with the maximum fine being up to $50,000,000; three times the value of the benefit obtained from the conduct (if the court can determine this); or if a court cannot determine the benefit, 30% of adjusted turnover during the breach period.

What do businesses need to know about the UCT?

The main change businesses need to be aware of is that the test for determining whether a particular term is “unfair” still remains the same, for example whether it:

1. causes a significant imbalance in the parties’ rights and obligations under the contract;
2. is not reasonably necessary to protect the legitimate interests of the party who is advantaged by the terms; and
3. would cause financial or other detriment to a party if applied or relied on.

In terms of the clauses which may be considered unfair, these include:

1. clauses which give one party the right to terminate, limit their liability or vary elements of the contract;
2. unilateral or imbalanced indemnities;
3. allowing one party to avoid or limit its obligations under the contract; and
4. certain auto-renewal clauses.

What are the steps businesses need to take?

To start with, businesses should consider whether they use a "standard form contract” (e.g., terms of use or a service agreement that is not negotiated), and whether they deal with customers, or with entities that could be considered “small businesses”. Businesses should then review those terms to ensure that potentially unfair clauses are now amended.

Below, are some tips for businesses to consider when reviewing their agreements:

1. Include a counterbalancing right: for example, an automatic renewal of a contract will not be considered unfair if the contract states that the supplier must provide notice of the renewal to the customer and provides the customer a right to end the contract without penalty.
2. Avoid broad terms: phrases such as “to the maximum extent permitted by law” or qualifying possibly unfair obligations with the word “reasonable”, may not on its own be enough to mitigate the “unfairness” in the term.
3. Be clear and transparent: ensure headings reflect the content of the clauses; avoid small, dense font; and bring key clauses (prices, terms, rollovers, termination rights, liability limits) front and centre for the customer.
4. Consider your legitimate interest: where there is a legitimate, reasonable, pragmatic reason for including a clause – and consider setting out that reason in the contract.

If you would like any help reviewing your agreements to make sure you comply with the UCT regime, please contact us here.

Article by Alex Gulli, Hamish Fraser and Lukas Mitterlechner.