Changes to the Unfair Contracts Regime

A reminder that on 9 November 2023, amendments to the unfair contracts regime are coming into effect. These changes are comprehensive, and they will affect many businesses’ duties, obligations and risks.

What is the Unfair Contracts Regime?

The Unfair Contracts Regime provides protections for customers against unfair contract terms. These are terms that cause a significant imbalance between parties and that are not reasonably necessary to protect the legitimate interests of the advantaged party. These terms usually also cause detriment to the disadvantaged party.

Terms that relate to the main subject matter of the contract or that are permitted by law will continue to be safe from the regime.

The regime will only apply if your customers are consumers or small businesses (as defined in the regime).

What are the changes?

·         Small business coverage: the meaning of small business will be extended to include businesses with less than 100 employees (rather than 20), or a business whose annual turnover does not exceed $10 million.

·         Insurance contracts: general insurance contracts will be caught by the amendments.

·         Contract price: the changes will remove the threshold contract price that determines whether the regime will apply to a contract. This means that contracts of any value will be caught.

·         Penalties: the use of unfair terms will be considered unlawful and not just unenforceable. This means that civil penalties will apply if a contravention occurs. The maximum penalty for a corporation is $50 million or 3 times the value of the benefit or 30% of the corporation’s adjusted turnover during the breach turnover period for the offence. The maximum penalty for individuals is $2.5 million. Important to note here is that there can be more than one contravention in the same contract – and multiple penalties!

·         Other remedies: apart from civil penalties, courts will also be able to make orders to prevent or reduce loss that a person may suffer, orders to voidvary or refuse all or part of the contract, or an injunction to stop future entry into a contract with the same or similar terms.

It is a good time to consider whether your business contracts are still appropriate and whether any of the proposed changes will affect your contracts.

If you would like to discuss any of the above, please contact the Osborn Law Commercial team on (02) 4927 2900.