Australia to introduce harsh penalties for unfair contract terms

As the federal government introduces legislation that could considerably increase the repercussions of violating consumer and competition laws, penalties of $50 million for companies that engage in anti-competitive behaviour may soon become law. 

The government is also attempting to put an end to the use of unfair contract terms (UCT), which give one company an unfair advantage over another. 

What are the current UCT laws?

Under the current UCT rules, UCTs in specific standard form contracts formed with consumers or certain categories of small businesses may be declared void and unenforceable by a court.

This means that as long as the unreasonable term can still bind the parties, the contract is valid as if it never existed. Unfair conditions have no additional consequences under the current system.

READ: A guide to the unfair contract terms law

What are the key changes proposed?

The Bill contains numerous significant amendments to UCT legislation that, if passed, would subject a broader range of agreements to the regulations and subject corporations that use UCTs in standard form contracts to severe penalties.

Entering into a standard form consumer or small business contract that contains an unfair term (or attempting to rely on the unfair term) will now result in financial penalties under the Bill rather than simply being void.

  • For companies, the maximum monetary penalties per violation are greater than $50 million
  • Three times the value of the benefit (if determined)
  • 30 per cent of the adjusted turnover during the period of the breach or the previous 12 months, whichever is longer.
  • Individuals involved in the conduct will face a maximum penalty of $2.5 million.

The National Retail Association welcomed the government’s commitment, noting that existing laws aren’t strong enough to protect small businesses from unfair terms, and given the economic crisis they’re in, with supply chain issues, labour shortages, and rising costs, this initiative couldn’t have come at a better time.

“The changes will make any reliance on or use of unfair terms in standard form contracts a civil violation, making it much easier for small businesses to challenge them.

“Furthermore, the government has increased the number of small business contracts that will be protected by expanding small business eligibility from less than 20 to 100 employees, or an annual turnover threshold of less than $10 million.

“Small businesses will be able to operate more comfortably and profitably now that they are no longer bound by unfair contracts. Given the importance of small businesses in our economy, this is a national benefit.”

Please visit this page to understand how to determine whether a contract term is unfair.

More here.

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