- Unfair Contract Terms (UCT) reforms will take effect on 9 November 2023.
- The reforms will make UCTs illegal, attracting substantial penalties.
- Businesses should take the opportunity to review their standard form contracts to ensure they do not include any unfair terms.
- ASIC has updated its guidance material on UCTs, available on the ASIC website.
From 9 November 2023, reforms will make UCTs illegal, attracting substantial penalties under the Competition and Consumer Act 2010 and the ASIC Act 2001, with each unfair term forming a separate contravention.
The reforms also expand the class of small business that can rely on UCT protections. To meet the small business threshold from 9 November 2023, a business must either employ fewer than 100 people or have a turnover of less than $10 million for the previous income year. Under the ASIC Act, the UCT regime will only apply to a small business contract if the upfront price payable (excluding interest) for the contract is $5 million or less. Under the ACL, the monetary contract threshold has been entirely removed.
Additionally, the reforms provide further detail about what constitutes a standard form contract (e.g. minor negotiated changes to an agreement might not exclude that agreement from the standard form definition).
The existing UCT law came into effect in 2010 and is contained within the Australian Consumer Law (ACL) and mirror provisions in the ASIC Act. Under the UCT regime, a term in a standard form contract is unfair if it:
- causes a significant imbalance in the parties’ rights and obligations;
- is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by such a term; and
- would cause detriment to a party if the term were to be applied or relied on.
The reforms do not change the test for whether a term is unfair.
Where can I find more information?
To assist industry and consumers understand the reforms, ASIC has updated its existing UCT guidance materials:
- INFO 210 Unfair contract term protections for consumers
- INFO 211 Unfair contract term protections for small businesses
- INFO 105 FAQs: Dealing with consumers and credit
ASIC is Australia’s corporate, markets and financial services regulator.