The Unfair Contract Terms regime (UCT) is intended to prevent businesses with a stronger bargaining position from relying on unfair terms in standard form contracts with consumers and/or small businesses.
In November 2023, the scope of the UCT will expand and penalties will increase.
From 9 November 2023, unfair contract terms will, in certain scenarios, be unlawful and those breaching the UCT regime will face significant penalties.
Who is affected?
The UCT regime applies to standard form consumer contracts or standard form small business contracts.
A standard form contract is a contract that has been prepared by one party to the contract without the opportunity of effective negotiation between the parties, including contracts offered on a ‘take it or leave it’ basis.
A consumer contract is a contract for the supply of goods, services or the sale or grant of interest in land wholly or predominantly for personal, domestic, or household use.
From 9 November 2023, a small business contract is a contract for the supply of goods or services, or the sale or grant of an interest in land where at least one party to the contract employs fewer than 100 people, or has an annual turnover of less than $10 million.
This means that transport and logistics businesses using standard form contracts will be subject to the new regime if:
- your business employs fewer than 100 people, or has an annual turnover of less than $10 million; or
- the party with whom you are contracting employs fewer than 100 people or has an annual turnover of less than $10 million or is a consumer.
However, the UCT regime does not apply to certain specific contracts. Significantly, a contract for the carriage of goods by ship is excluded from the UCT. A contract for the carriage of goods by ship includes any contract covered by a sea carriage document within the meaning of the amended Hague Rules (and more specifically described in section 7(a) of the Carriage of Goods by Sea Act 1991 (Cth)).
For example, terms and conditions associated with a bill of lading for the carriage of goods by ship will not be subject to the UCT.
So, while contracts regarding the carriage of goods by sea are excluded from the UCT, contracts for goods that are transported by other means – such as air, road or rail – may still be subject to the UCT.
What should you do?
Businesses should not delay reviewing all applicable standard form contracts with consumers or small business counterparties to ensure compliance with the new UCT.
Businesses that routinely use standard form contracts — including standard terms and conditions attached to transport or logistics agreements or to purchase orders — should identify, review, amend and improve their contracts to ensure that they comply with the expanded UCT. Failure to do so can carry serious and costly consequences.
Where the UCT applies, you must review your standard form contracts for unfair terms. Unfair terms must be amended if the term:
- causes a significant imbalance in the parties’ rights;
- would cause detriment to a party if relied upon; and
- is not reasonably necessary to protect a party’s legitimate interests.
Examples of unfair terms may include those which:
- allow Party A to vary the material terms of the contract without the consent of Party B;
- limit Party A’s liability for loss caused by Party’s A’s negligence or breach of contract; or
- require Party A to indemnify Party B for loss caused by Party B’s negligence or breach of contract.
From 9 November 2023, Courts will have the power to impose penalties on:
- individuals of up to $2.5 million; and
- companies, the greater of:
- $50 million;
- three times the value of the benefit derived from the contravention of the UCT (that is, if the Court can determine the value of the benefit obtained from the contravention); or
- 30% of the company’s annual turnover for the 12-month period prior to the contravention (that is, if the Court cannot determine the value of the benefit);
for each unfair term in the same contract.
How can we help?
Our Corporate & Commercial lawyers can assist with reviewing and amending your contracts to ensure compliance with the UCT. We also carry out internal compliance training for businesses if necessary.
If you require advice, or would like to discuss any aspects of the UCTs regime, please contact a member of our Corporate & Commercial team.
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