One step closer to reforms and penalties for unfair contract terms

5 minute read  10.02.2022 Stella Luo, Katrina Alidenes

The Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 (the Bill), has been introduced. As foreshadowed in prior exposure draft legislation (Draft Legislation), the Bill proposes to strengthen and expand the unfair contract term (UCT) regime. It includes the introduction of penalties to propose, apply or rely on an unfair term in applicable contracts and expansion of the UCT regime's scope. We explore what's new in comparison to the current UCT laws and the draft legislation released in late 2021.


Key takeouts


  • Organisations will have 12 months (from the date of Royal Assent) instead of six months under the Draft Legislation, to make the necessary adjustments to their standard form contracts.
  • Many of the reforms mirror those contemplated in the Draft Legislation. They include new powers for courts to impose civil penalties, introducing more extensive remedies in response to contraventions, and expanding the definition of 'small business contract' to cover more types of contracts.
  • The Bill removes the upfront contract price threshold requirement for small business contracts for goods, services or sale/grant of an interest in land. However, this threshold remains and is raised for small business financial products or services contracts. Some additional contract classes will now be excluded.

On 9 February 2022, a new Bill was introduced to amend the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Australian Consumer Law under Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL).

These reforms continue the expansion and significance of the UCT regime since it was introduced more than a decade ago.

The UCT amendments under this Bill will apply to new applicable standard form contracts made on or after the commencement of the new legislation (as well as existing contracts that are renewed, or terms in existing contracts that are varied, on or after the commencement date).

As foreshadowed in the Draft Legislation released in August 2021, the Bill proposes to:

  • Introduce civil penalties for proposing, applying or relying on an unfair contract term. Currently, a term in a standard form contract found to be unfair is only deemed void. If passed, courts will be able to impose a civil penalty of up to $500,000 for individuals, or for corporations the greater of $10 million, three times the value of the benefit derived from the contravention, or 10% of annual turnover;
  • Apply UCT protections to a much broader range of businesses, covering standard form contracts where at least one party either employs fewer than 100 persons (as opposed to the current threshold of 20 employees) or has an annual turnover of less than $10 million (although some additional requirements for financial products and services are retained, as discussed below);
  • Empower courts to impose more extensive remedies as considered appropriate by the court (as opposed to the term merely being automatically void);
  • Clarify that the remedies available for ‘non-party consumers’ also apply to ‘non-party small businesses';
  • Clarify what constitutes a ‘standard form contract’ under the UCT regime. For example, courts must take into account whether a party has entered into another contract prepared on substantially similar terms, and how many contracts that party has entered into. It also clarifies that a contract may still be a standard form contract despite there having been an opportunity for a party to:
  • negotiate changes to terms of the contract that are minor or insubstantial in effect;
  • select a term from a range of options determined by another party; or
  • negotiate terms of another contract or proposed contract;
  • Exempt terms that are taken to be included in a contract by operation of law from the UCT regime;
  • Streamline the court’s power to make orders to void, vary or refuse to enforce part or all of a contract or collateral arrangement;
  • Clarify that courts can make orders applying to any existing consumer or small business standard form contracts entered into by a respondent that contains a substantially similar term to one the court has declared to be an unfair contract term. This is whether or not that contract is put before the court; and
  • Clarify that courts can issue injunctions against a respondent with respect to existing or future consumer or small business standard form contracts containing a term that is substantially the same as one the court has declared to be an unfair contract term.

Changes from the Draft Legislation

In addition to the above changes previously contemplated by the Draft Legislation, the Bill also differs in several respects from the Draft Legislation. Key differences include:

  • Changes to the ‘upfront price payable’ threshold requirement for applicable ‘small business contracts’. Contracts for the sale of goods or services or the sale or grant of an interest in land which are regulated by the ACL, do not need to satisfy an upfront price payable threshold. This means that the UCT regime will apply if the other elements are met, regardless of the amount of the upfront contract value. In contrast, the upfront price payable threshold requirement for contracts for financial products or services which are regulated under the ASIC Act continues to apply (in addition to the new requirements outlined above), but increased to $5,000,000.
  • The Bill will not introduce a rebuttable presumption that a term is unfair where it is substantially similar to another term found to be unfair within the same industry. The Draft Legislation contemplated that terms substantially similar to other terms previously held to be unfair will be presumed also unfair. This position is not reflected in the Bill; there is no change from the current UCT laws in this regard.
  • Exclusion of certain contracts from the UCT regime. These contracts include:
  • contracts made under, or in accordance with, the operating rules of licensed financial markets such as ASX Limited;
  • contracts made under, or in accordance with, the operating rules of licensed clearing and settlement facilities;
  • contracts between certain entities to the extent they consist of listing rules of a licensed market;
  • contracts that establish, contain or incorporate rules governing the operation of a payment or settlement system approved by the RBA; and
  • certain replacement and renewed life insurance contracts.
  • Commencement of the new UCT changes. The Bill proposes that the changes commence 12 months from the day it receives Royal Assent, as opposed to the six months contemplated by the Draft Legislation.
  • Mandated review. The Commonwealth Minister must cause a review to be undertaken of the new UCT provisions during the two years post-commencement.

What the changes mean for businesses

These changes, if passed, will affect a wide range of industries and sectors, in particular, those that regularly deal with individual consumers and small to medium-sized businesses using standard form contracts.

The proposed changes will significantly impact the risks associated with using standard form contracts. While there is a broader class of exempt contracts, the reforms to the regime expand the size of business and hence range of contracts to which the regime will apply. They also impose a civil penalty, with maximums of similar magnitude for engaging in anti-competitive conduct or unconscionable conduct, for proposing, applying or relying on an unfair term in an applicable standard form contract.

With the introduction of the Bill, we can expect a strengthened and expanded UCT regime to come into effect. Businesses should now prioritise reassessing the risk in their standard form contracts. Should the Bill be passed, a broader range of contracts will fall within the expanded UCT regime and careful consideration of classes of potential exemption will be required. The potential downside of proposing, applying or relying on an unfair term will be significantly greater.

We can assist with:

  • Reviewing standard form contracts and terms & conditions: to ensure that they do not contain UCTs, and remediating them if necessary; and
  • Conducting UCT regime compliance training: to ensure that businesses understand their obligations under the UCT regime and assist businesses to develop processes to avoid including UCTs in existing and future standard form contracts.

Please get in touch with us if you have any questions or would like assistance with navigating the proposed changes to the UCT regime.

View further information on the Bill, including a copy of the Bill and the Explanatory Memorandum.

View our previous alert, Reforms and penalties on the way for unfair contract terms.

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