Unfair terms will be prohibited from November under changes to consumer law.
Revise standard contracts or risk millions in fines, ACCC warns
Businesses have less than two months to check that their standard contracts are fair or risk substantial penalties, the ACCC warns.
It said legal changes from 9 November would prohibit businesses from proposing, using or relying on unfair terms in standard form contracts with consumers and small businesses.
“The changes to the unfair contract terms laws should motivate businesses to take steps to ensure their standard form contracts are fair, including by removing or amending concerning terms,” ACCC deputy chair Mick Keogh said.
“There was previously little motivation for businesses to comply with the law, despite the ACCC’s compliance and enforcement actions. We strongly urge businesses to review their contracts now to ensure they comply.”
The ACCC said until the change, only a court could declare specific terms of a contract were unfair and therefore void.
“The test for whether a contract term is unfair has not changed,” Mr Keogh said. “However, businesses now could potentially face substantial penalties for contravening the law.”
“This will better protect consumers and small businesses who have limited bargaining power, expertise and ability to negotiate or assess standard form contracts
“While some of the changes won’t apply to contracts until they are renewed or a new contract is entered into, businesses should be proactive in reviewing their standard form contracts now.”
The ACCC said standard form contracts were cost-effective for many businesses dealing with large numbers of consumer or small business customers, but they were largely imposed on a take-it-or-leave-it basis and were usually drafted to the advantage of the party offering them.
The changes expanded protections to contracts with small businesses that employed fewer than 100 staff or had an annual turnover of less than $10 million and applied irrespective of the value of the contract.
The changes also clarified other aspects of the law, such as more clearly defining standard form contracts.
Penalties for businesses in breach increase from $10 million to $50 million, or three times the value of the “reasonably attributable” benefit obtained from the conduct, whichever was greater. If a court was unable to determine the benefit, the maximum penalty would be 30 per cent of adjusted turnover during the breach period.
For individuals, the maximum penalty also increased fivefold from $500,000 to $2.5 million.
The maximum penalty for an individual is $2.5 million.
The ACCC said recent action in relation to unfair contracts had resulted in fertiliser industry suppliers amending their terms and Fowler Homes admitting that its standard home building contract contained unfair terms.
The changes would apply to standard form contracts made or renewed on or after 9 November.
The ACCC suggested five guidelines for contract review:
- Consider both points of view.
- Include counter-balancing terms, such as a reciprocal ability to exit the contract without penalties.
- Avoid broad terms.
- Meet consumer law obligations: refrain from terms that limit guarantee rights, for example.
- Be clear and transparent in the language and key terms.