The unfair contract terms regime aims to protect consumers and small businesses in their dealings with other businesses (such as larger businesses with more bargaining power), by prohibiting the use of unfair contract terms in standard form contracts. These are contracts where typically one party has prepared the contract and presented it to the other party on a ‘take it or leave it’ basis.
A term of a consumer contract is considered to be unfair if it:
- Would cause a significant imbalance in the parties rights and obligations arising under the contract;
- Is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- Would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Examples of unfair contract terms include:
- A term that effectively permits one party (but not the other party) to avoid or limit performance of the contract.
- A term that penalises one party (but not the other party) for a breach or termination of the contract.
- A term that allows one party (but not the other party) to vary the terms of the contract.
- A term that allows one party to vary the upfront price payable under the contract without the right of the other party to terminate the contract.
- A term that limits one party’s right to sue the other party.
For many years, a court could declare a term of a standard form contract to be unfair, and therefore void. However, there were no penalties associated with the inclusion of unfair contract terms. This changed as of 10 November 2023 with amendments to the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth). Significant penalties are now possible for businesses that propose unfair contract terms. The maximum financial penalty that can be imposed for a contravention of the unfair contract term regime is:
- For companies, the greater of
- $50 million,
- three times the value of the benefit obtained from the contravention, or
- if the value of the benefit cannot be determined, 30 per cent of the ‘adjusted turnover’ of the company during a 12-month period (which is a formula that would consider the turnover of all related companies in the case of a corporate group).
- For individuals, $2.5 million per contravention.
Given the possibility of high financial penalties, ensuring standard form contracts do not contain any unfair contract terms is now even more important.
MTA has prepared the attached guide featuring 15 automotive industry sectors, with 41 unfair contract term examples, explained in plain English. The comprehensive information within the guide seeks to simplify complex unfair contract terms legislation to create a usable guide for everyone in the automotive industry.
If you have any questions regarding this process, please contact the Workplace Relations team on (08) 8291 2000 or via email at wr@mtasant.com.au.
