Significant changes to the unfair contracts regime come into law today, with new multi-million penalties for companies and individuals forcing trading partners to sign contracts that are deemed unfair. Are your contracts fair and equitable?
You have probably been wondering… what’s the go with all this legal regulation stuff? It seems like every time you think you’re on top of things, along comes another curve ball to stump you at the crease. Well, here’s the thing – a lot of laws are designed to help consumers and small businesses navigate the increasingly one-sided business environment they find themselves in.
Starting 9th November 2023, new Unfair Contract Terms (“UCT”) regulations will be introduced to enhance consumer and small business protection, and to ensure fairness in business contracts. Here’s what you need to know:
- A clearer definition of Unfair Contract Terms: The UCT laws now provide more clarity around what clauses in contracts are considered unfair.
- Increased Small Business Protection: The changes will make it easier for consumers and small businesses to challenge unfair contract terms and seek remedies.
- Penalties for Non-Compliance: Businesses not complying with these regulations may face significant penalties of up to $50 million.
This simple Q & A checklist will help you broadly determine whether your contracts are at risk AND the penalties for breach.
Q1. Do you use “standard form contracts” in your business?
YES / NO
A standard form contract is one that usually comprises a standard set of Terms with little room for negotiating any changes and presented on a take it or leave it basis. Examples include:
- Standard terms and conditions
- Supply and sale contracts
- Online terms
- End user agreements
- Service agreements
- Hire agreements
Q2. Is your contract a “consumer contract” or a “business contract”? YES / NO
Under the Australian Consumer Laws, a consumer contract is one that is for the supply of goods or services of a kind ordinarily acquired for personal, domestic, or household use or consumption AND the amount paid is less than $100,000.
A business contract is any contract where one of the parties has less than 100 employees OR less than $10m in turnover in their last financial year.
Q3. Do my contracts contain any unfair contract terms?
YES / NO
An unfair contract term is one which would:
- Cause a significant imbalance in the parties’ rights and obligations;
- Is not reasonably necessary in order to protect the legitimate interests of the party advantaged by the term; or
- Would cause detriment to a party if it were to be applied.
Some examples include:-
- A term allowing one party (but not the other) to: –
- Evade or limit its obligations or responsibilities under the contract?
- Vary, renew, or terminate the contract?
- Vary the upfront price payable without the other party having the right to terminate?
- Be penalised for breaches or termination of contract?
Q4. Should I be concerned about any of this given the penalties for a breach?
YES, YES, and YES
Let’s get fair dinkum here, the penalties are:-
For an individual – up to $2,500,000
For a company – the greater of:-
Three times the value of the benefit obtained (if able to be calculated)
30% of the company’s turnover during the offence period if the value of the benefit cannot be determined.
There is no doubt that many businesses will be affected by the new UCT regime, the question now is, what are you going to do now? Here are some steps you can take right now to make sure your contracts are compliant:
- Review any standard form contracts, in particular your Terms and Conditions, identify unfair contract terms and decide whether the terms can be amended, or whether they are reasonably necessary to protect legitimate interests.
- Remove any unfair termsfrom all standard form contracts.
- Train staffto understand the changes and what they mean for your business.
If you would like your Terms and Conditions to see if they comply with the UCT changes, contact Natalie Ledlin at FCW Lawyers.
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