Unfair Contract Terms Changes Update

FINANCIAL SECTOR REFORM (HAYNE ROYAL COMMISSION RESPONSE – PROTECTING CONSUMERS (2019 MEASURES)) ACT 2020

On the 9th November 2023, changes to the Australian Consumer Law came into effect, imposing penalties for Unfair Contract Terms (UCT) and expanding the scope of small businesses protected by the UCT regime.

While the test for whether a contract term is unfair remains unchanged, the expanded small business definition may have some bearing on standard trading conditions of which businesses are responsible for another party’s property, or alternatively, any agreements you may enter with any party such as, principals, contractors, or suppliers.

What is an unfair contract term?

This is where there is a considerable disproportion in the agreement between parties and the agreement is not reasonably necessary to protect the interest of a party seeking to rely on it which results in a disadvantage to the individual or small business.

What do these changes mean?

The purpose of these changes is to expand the definition of small business and, introduce penalties into the regime of up to $50,000,000.
This means it is now easier for the courts to deem an agreement as void, and it is now easier for them to issue penalties.

What are the changes to the definition of small business?

This definition now includes small businesses with less than 100 employees (previously it was less than 20 employees) and applies to businesses who have a turnover less than $10,000,000.

Who will this affect?

These changes will have an impact on businesses who use agreements or standard trading conditions of which a party is considered disadvantaged.

An example of this could be a business who uses their written agreement to exclude goods that are damaged whilst in their care (E.g. Storage facilities, Transport Businesses, Warehousing and Distributors).

Should the written agreement be found to be unfair, the contract terms could be deemed as null and void with penalties applying and also, the business being left paying for damage if they don’t have an appropriate insurance policy behind them.

This is general information only and does not constitute advice, If you have any queries with respect of the impact that these changes may have on your insurances, please contact our office.

With respect of any contracts, terms or agreements, we recommend you seek advice from your qualified Legal Advisor.