Change is imminent. Are you ready? 4 min read
New draft laws would broaden the scope of existing UCT laws, introduce penalties and increase penalties for all competition and consumer law contraventions. On 28 September 2022, the Federal Government tabled the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (Cth) (UCT Reform Bill). This bill is aimed at amending unfair contract terms laws.
The UCT Reform Bill is, in substance, the same as the previous unfair contract terms bill you may have seen, which lapsed when parliament was dissolved for the May election. We previously reported on that bill here. However, the current bill also proposes significant increases to the maximum penalties under the Competition and Consumer Act 2010 (Cth) (CCA), including the Australian Consumer Law (ACL).
This Insight provides an overview of proposed changes in the reforming legislation, including the amendments to the UCT regime and the increased penalties under the CCA and ACL. Given the imminent passage of these reforms, now is the time to prepare your organisation for the changes and review and amend any potentially problematic standard form contracts.
What is proposed to change?
The UCT Reform Bill would introduce the following changes to the unfair contract terms laws in both the ACL and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act):
- Penalties: unfair contract terms would be unlawful and the business proposing or seeking to rely on them would be exposed to the risk of serious penalties, in line with the maximum penalties under the ACL or the ASIC Act (depending on the type of contract). Currently there are no penalties for unfair contract terms.
- Expanded scope:
- For contracts to which the ACL applies, the laws would remove the financial thresholds that currently apply to relevant contracts. Instead, the laws would apply to any standard form contract with a 'small business'. The definition of small business is expanded to capture entities with up 100 employees (increased from 20) or with up to $10 million annual turnover.
- For contracts to which the ASIC Act applies, the laws would increase the financial threshold from $3 million to $5 million and the definition of small business is expanded to capture entities with up to 100 employees (increased from 20) or with up to $10 million annual turnover. This threshold increase aligns with the changes the Australian Banking Association committed to make to the definition of small business under the Banking Code of Practice. However, certain contracts would be excluded from the new UCT regime, including operating rules of licensed financial markets (such as ASX Limited) and licensed clearing settlement systems.
- New powers: courts would be empowered to make more flexible orders to prevent or reduce loss or damage in relation to the UCT, in addition to the power to impose civil penalties.
The laws would apply to standard form contracts entered into or renewed 12 months after the laws take effect, or to terms within contracts that are varied following that date.
Penalty increases under the CCA and ACL
The UCT Reform Bill also proposes the following increases to the maximum penalties under the CCA and the ACL.
| Where the contravening party is | Existing civil penalties | Proposed civil penalties |
|---|---|---|
|
A corporation |
The greater of:
Where the value of the benefit cannot be determined, 10% of annual turnover in the 12 months preceding the act or omission. |
The greater of:
Where the value of the benefit cannot be determined, 30% of the adjusted turnover during the breach turnover period for the act or omission. |
|
An individual |
$500,000 |
$2.5 million |
The introduction of a 'breach turnover period' will mean the relevant period for the penalty calculation will cover the period from when a business is found to have begun committing a contravention to when it ceased doing so. The minimum period will be 12 months. In many cases the 'breach turnover period' may be longer than the period used to determine maximum turnover in the current law (which is 12 months immediately prior to the breach).
These changes substantially increase the penalties applicable to contraventions of the CCA, including cartel conduct, anticompetitive agreements, misuse of market power and consumer law contraventions including unfair contract terms. This comes after changes were introduced in 2018 to increase penalties for contraventions of the ACL (discussed here), and against the backdrop of a general trend for higher penalties (discussed here).
No changes are proposed to the penalty amounts under the ASIC Act.
Commencement and transition period
The UCT Reform Bill is intended to commence 12 months after the bill receives Royal Assent. This 12-month period is intended to provide businesses time to review and amend relevant contracts in preparedness for the new provisions. The new unfair contract terms laws will apply to standard form contracts entered into following commencement of the reforms, as well as to any existing standard form contracts that are renewed after commencement.
The increased penalties are proposed to take effect from the date the UCT Reform Bill receives Royal Assent.
Next steps
We recommend using this time to prepare for the changes and making sure your business has its standard form contracts in order. The broader scope of the amended UCT regime, as well as the substantial increase to financial penalties under the CCA, heightens the consequences of contractual terms being found 'unfair'.
You can also read our coverage of what else to expect from the Government on competition and consumer laws in our two-part series: accessible here and here.