ACCC welcomes expansion of unfair contract terms laws

Companies that breach the competition and consumer laws could face new and higher penalties under legal changes which passed Parliament last week.

The changes consist of two parts; the introduction of penalties and other changes relating to unfair contract terms, and significant increases in maximum penalties for breaches of certain provisions of the Competition and Consumer Act including the Australian Consumer Law.

Penalties for unfair contract terms will come into effect the day after 12 months have passed after the bill receives Royal Assent. The higher CCA penalties will apply the day after Royal Assent is granted.

Maximum penalties increased five-fold

Under the changes increasing penalties for some conduct, maximum penalties for companies that breach those provisions have increased to the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct.

“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.”

Introduction of first-ever penalties for unfair contract terms welcomed

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 the use of such terms.”

The changes will also expand coverage to more small business contracts. The protections will apply to contracts with small business which employ fewer than 100 persons or have an annual turnover of less than $10 million, and will apply irrespective of the value of the contract. The changes also clarify other aspects of the laws, such as more clearly defining ‘standard form contracts’.

“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers. However, by definition, 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.