Unfair Contract Terms: New Penalties Pack a Punch

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It’s time to review your standard form contracts for potential unfair terms! Failing to address unfair terms in a contract can now prove to be a costly mistake.

New laws are set to bring changes in November 2023 to the unfair terms regime under existing consumer and security laws. The aim is to protect consumers and small businesses. Here’s what you need to know:

👉 Who is affected?

The new penalties affect all businesses that use standard form contracts in dealings with consumers and small businesses in relation to:

  • the supply of goods or services;
  • selling or leasing land; or
  • the supply of financial services or financial products

A standard form contract is one that is offered on a ‘take it or leave it’ basis, where the other party has little or no opportunity to negotiate the contract.

👉 What’s changing?

Previously, the Courts could declare specific terms of a contract unfair and therefore void, but they were not prohibited, and the Court could not impose any penalties on businesses that included them in standard form contracts.

Now, businesses can be penalised for unfair contract terms, and the maximum financial penalties have also been increased for individuals and businesses that breach the Competition and Consumer Act.

This means businesses may be subject to a maximum penalty of $50 million ($40 million increase) or three times the value derived from the relevant breach 😲

Individuals can now face a maximum penalty of $2.5 million – that is a $2 million increase! The exposure is huge 👀

👉How the new law aims to protect small businesses

Consumer and security laws have expanded the definition of a ‘small business’ to increase safeguards for small business. A ‘small business’ is described as one that has up to 100 employees or has an annual turnover of up to $10 million.

The concept behind this is to expand the consumers and small businesses that are protected under these laws. It aims to create a fairer marketplace for all businesses and consumers when signing a standard form contract with the big guys!

👉What you should do

  1. For a refresher on what constitutes an unfair contract term, see our earlier blog post here.
  2. Review any standard form contracts used in your business to ensure that they are compliant for when the new laws take effect from November 2023; and
  3. If you need any help, get in touch with us!
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