Businesses face up to $50 million or 30 percent turnover in fines for unfair contract terms

Parliament has passed a bill to impose the first-ever financial penalties for companies that have been found to have provided unfair contract terms.

The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, which passed both houses of Parliament last week, focused on the increase in maximum financial penalties for those who have breached the Competition and Consumer Act. The bill also added unfair contract terms to the Act.

The penalties of offending businesses will be the greatest of either $50 million, three times the value of the "reasonably attributable" benefit obtained from the conduct - if the court can determine this - or 30 percent of adjusted turnover during the breach period.

The penalties will apply to businesses that have been found to include unfair contract terms in their standard form contracts with consumers and small businesses. The bill also expands coverage to more small business contracts, including small businesses 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.

“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,” ACCC chair Gina Cass-Gottlieb said.

Before the bill, courts could declare specific terms of a contract unfair and therefore void, but were ultimately not prohibited so no penalties could be imposed.

In August, the Federal Court found that Fujifilm Business Innovation Australia, formerly Fuji Xerox Australia, had unfair terms in its small business contracts. The court ordered the company to pay the ACCC some of its legal costs, but did not impose any further financial penalties at the time.

“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,” 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 also clarify other aspects of the laws, including the definition of a “standard form contract”.

“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,” Cass-Gottlieb said.

“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.”

The penalties are also applicable to the wider Competition and Consumer Act, which was an increase from the original $10 million and 10 percent of adjusted turnover during the breach period. Other penalties include $2.5 million for individuals (up from $500,000).

In addition to unfair contract terms, other offences covered by the penalties include unconscionable conduct, false or misleading representations, harassment and coercion, supplying products that do not comply with safety or information standards or that are covered by a safety ban and more. Also included are competition law breaches like cartel offences, the news media & digital platforms mandatory bargaining code provisions, the international liner cargo shipping provisions, and the prohibited conduct in the energy market provisions.

“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,” 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.”