Changes to the unfair contract terms regime could affect your business

From 9 November 2023, the class of contracts covered by the unfair contract terms (UCT) regime will expand. The reforms will require businesses to review and amend ‘standard form’ contracts.

Who does the UCT regime apply to?

The UCT regime applies to:

  • a ‘standard form’ contract;
  • for the supply of goods and services where one party is a consumer or a small business; and
  • For the sale or grant of an interest in land.

When is a term unfair?

A term is unfair if it:

  • causes a significant imbalance in the parties’ rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by it; and
  • would cause detriment (whether financial or otherwise) to the counterparty if it were to be applied or relied upon.

Examples of potential UCT’s include:

  • unilateral right to terminate;
  • unilateral rights to vary price or key terms;
  • automatic renewals;
  • unilateral rights to determine whether a breach has occurred; and
  • unbalanced unilateral rights to assign a contract to the detriment of the other party.

What changes does the new regime contemplate?

  • the definition of a ‘small business’ has been expanded to cover businesses who employ less than 100 employees and/or who have an annual turnover less than AU$10 million . If the business does not fall within this definition the UCT regime will not apply.
  • there will be higher penalties and new remedies, namely:
  • a breach of the UCT regime by a company may attract penalties in excess of AU$50 million under the Australian Consumer Law; and
  • a Court will have additional remedies they are able to impose, including making orders to prevent or reduce loss or damage arising from the UCTs. This could include an order, to prevent a term that is the same or substantially similar in effect to a term that has been declared as unfair, from being included in any future standard form contracts.

What do I need to do?

Given the significant penalties and consequences of non-compliance you and your business cannot be complacent and need to take steps to ensure compliance. Baybridge can help you navigate the new regime and ensure your contracts are compliant.

Baybridge

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Christian Bird

Special Counsel | Commercial

Christian Bird brings real world experience to his role as a senior franchising and general commercial lawyer. Christian understands the commercial challenges faced by franchisors having watched his father successfully found and grow a national franchise system that has been in operation for over 30 years. As a result, he is uniquely placed to assist franchising clients with the myriad of legal challenges they face. Christian has experience working with franchisors across Australia and internationally in a range of industries.