On 9 November 2023, extensive changes to the Unfair Contract Terms (UCT) regime came into effect under the Australian Consumer Law (ACL) and mirrored the provisions in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). This blog will break down those changes and provide you with tips on how to implement them and comply with the law.
What are the new changes to the Unfair Contract Terms regime?
The new changes introduce more stringent measures against unfair contract terms and provide enhanced legal tools to address them.
Contracts affected by the new Unfair Contract Terms regime changes
The amendments apply to the following contracts:
- Consumer Contracts and Small Business Contracts: These changes affect contracts for goods, services, or the sale or grant of an interest in land, entered on or after 9 November 2023.
- Renewed Contracts: Existing consumer contracts and small business contracts that are ‘standard form contracts’ and are renewed on or after 9 November 2023 are also subject to the updated UCT regime.
- Variation of Terms: The new UCT regime applies to terms of existing consumer contracts or small business contracts (which are ‘standard form contracts’) that are renewed or after 9 November 2023 and to the varied terms which are varied on or after 9 November 2023.
What is a standard form contract?
Normally, a standard form contract is one that undergoes no negotiation between the involved parties and is often characterised by ‘take it or leave it’ terms. The determination of whether a contract qualifies as a standard form is a decision entrusted to the court
To evaluate whether an agreement qualifies as a standard form contract, the court will examine the following:
- Whether the dominant party entirely prepared the contract
- Whether the non-dominant party had any opportunity to negotiate the contract terms before signing
- Whether the situation amounted to a ‘take it or leave it’ scenario
For situations related to financial products or the provision of financial products or services, the evaluation adheres to the criteria outlined in section 12BK(2) of the ASIC Act.
What is an unfair contract term?
Contract terms are unfair if they:
- Result in a substantial imbalance in the rights and obligations of the parties within the contract.
- Are not reasonably essential to safeguard the legitimate interests of the party benefiting from the term.
- Would inflict financial or other forms of harm on the opposing party if enforced.
Outcomes of Non-Compliance
The consequences of failing to comply with the updated UCT regime include:
- Illegality: Unfair contract terms are now illegal.
- Penalties: The substantially higher civil penalty regime under the ACL applies, allowing for significant penalties.
- Court Orders: Courts can make flexible orders to prevent or reduce loss or damage caused by relying on an unfair contract term.
What to Expect Going Forward
For clients and practitioners, the risk landscape has changed. Businesses should review and potentially update their standard form contracts to ensure compliance with the revised regulations.
- On 9 November 2023, extensive changes to the Unfair Contract Terms (UCT) regime came into effect
- These changes will apply to most businesses
- Non-compliance with the new regulations incurs severe penalties.