Unfair Contract Terms – Is there a new Problem? – Contracts and Commercial Law

Since our article in November 2018, the Unfair
Contracts Terms (“UCT”) regime¹ has been
strengthened to apply to a much greater pool of contracts, and so
some businesses which previously were not affected by it, now
suddenly find themselves in potentially very dangerous waters. The
principles and recommendations in that article have not diminished
at all, but the adverse repercussions for putting a contract with
UCTs before a small business or individual have been substantially
strengthened.

So, what has changed? Well – the UCT regime now has some
very sharp teeth!

Illegality and serious penalties

From 10 November 2023, UCTs are prohibited and, unlike the
previous regime which merely made offending provisions
unenforceable and void, entities which now propose contracts
containing UCTs will be subject to very substantial penalties. For
companies, the penalties can be up to $50 million or 3 times the
value of the benefit obtained (whichever is greater) or a figure
representing 30% of adjusted turnover. For individuals, the
penalties can be up to $2.5 million.

Increased powers of a Court

Under the new UCT regime, a Court is not limited to declaring
UCTs unenforceable and void, but now, in addition to handing out
large monetary penalties, the Court may exercise a discretion to
make injunctive orders against an entity proposing or seeking to
rely on UCTs, and also make orders for loss and damage sustained by
those adversely affected by the UCTs.

Criteria for assessment of UCTs

In deciding whether or not a contract is a standard form
contract, the Court is no longer hamstrung by considerations of
whether a party had an opportunity to negotiate minor changes,
delete terms or select from a set number of options. Importantly,
it will have no regard to the categorisation of a document by its
proposer as being “non-standard form”.

Has the test for UCTs changed?

The short answer is no! It remains the same as previously where
it is necessary to examine the specific commercial circumstances of
the arrangement between the parties. Particularly where:

• The contract is a standard form consumer or small business
  contract (although the definition of small business has greatly
  expanded).




• The UCT causes significant imbalance in the rights and
  obligations of the contracting parties.




• The UCT would cause undue detriment to one party to the
  advantage of the other.




• The UCT is not reasonably necessary to protect the legitimate
  interest of the proposing party.

Don’t even contemplate these terms(!):

• Automatic roll-over or renewal.




• Unreasonable exit or early termination fees.




• Termination or suspension unilaterally or on substantially
  different criteria than for the other party.




• Broad indemnities granted by one party to the other without
  reciprocity.




• Wide definitions of loss and damage for one party but not the
  other.




• Extensive rights of one party to change service or product
  descriptions.




• Unreasonable rights to vary fees.




• Exclusion of refunds.

Foonote

¹ In this article, we are concerned with the
expanded regime contained within the Australian Consumer Law
(“ACL”). The ASIC Act has specific UCTs which relate to
the providers and recipients of financial services, and has not
been recently amended. Penalties under the ASIC Act are
significantly less than under the ACL.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.