Rules against unfair contract terms proposed to be tougher

Rules against unfair contract terms proposed to be tougher

Companies that violate consumer and competition laws may now be subject to new, more severe penalties, thanks to legislative changes approved by Parliament last week. 

Consumer-facing companies should review their standard form agreements and procedures for submitting or claiming to rely on them immediately.

The modifications come in two parts: the addition of fines and other modifications about unfair contract terms, as well as significant increases in the maximum fines for violations of specific provisions of the Competition and Consumer Act, including the Australian Consumer Law.

Penalties for unfair contract terms will take effect a year after the bill receives royal assent. The increased CCA penalties will go into effect the day after Royal Assent is granted. The Treasury Laws Amendment Bill 2022 was approved by both Houses of Parliament on October 27, 2022. Violations committed after it goes into effect will face harsher penalties under the Competition and Consumer Act. The new maximum financial penalties for businesses are the greatest of the:

  • $50,000,000;
  • Three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this; or
  • if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

Previously, the maximum fine was $10 million, equal to either 10 per cent of the relevant annual turnover or three times the benefit. The top fine for a single offender will rise from $500,000 to $2.5 million. These maximum punishments apply to a variety of offences and civil penalty provisions under the Australian Consumer Law, such as unconscionable behaviour, false or misleading representations, harassment and coercion, supplying products that don’t meet safety or information standards or that are subject to safety ban, and more.

They also apply to most civil and criminal offences under competition law, including cartel offences, the news media & digital platforms’ mandatory bargaining code provisions, the international liner cargo shipping provisions, and the prohibited conduct in the energy market provisions.

Additionally, more small business contracts will be covered by the modifications. Contracts with small businesses that employ fewer than 100 people or have an annual revenue of less than $10 million will be covered by the protections, regardless of the contract’s value. The amendments also clarify other legal provisions, such as the definition of “standard form contracts.”

Maximum penalties increased five-fold

The maximum penalties for companies that violate these provisions have been increased under the new laws to the greater of $50 million, three times the value derived from the violation, or, if the value derived from the violation cannot be determined, 30% of the company’s revenue during the time it engaged in the violation.

“The increase in penalties should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers,” ACCC Chair Gina Cass-Gottlieb said.

“These maximum penalty changes will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”

The changes also include the introduction of penalties for businesses that include unfair contract terms in their standard form contracts with consumers and small businesses.

“We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply,” Ms Cass-Gottlieb said.

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.

“Businesses have 12 months to review and update their standard form contracts before these penalties apply. These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future,” Ms Cass-Gottlieb said.

“Many small business complaints about big business are about unfair contract terms, and it will be an enormous boost to small businesses that there will be a far stronger deterrent against using such terms.”

“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers. However, these contracts are largely imposed on a ‘take it or leave it’ basis. The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power. We are pleased that these laws have been strengthened,” Ms Cass-Gottlieb said.

Source.

Visit the ACCC. 

Read more about unfair Contract terms here.

More on  Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 

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