Unfair consumer law?

The Assistant Treasurer announced that the Commonwealth and state and territory governments have agreed to strengthen existing unfair contract term (UCT) protections in the Australian Consumer Law by:

• making UCTs unlawful and give courts the power to impose civil penalties;
• providing more flexible remedies to a court when it declares a contract term unfair;
• increasing the eligibility threshold for the protections from less than 20 to less than 100 employees, or alternatively annual turnover of less than $10 million;
• removing the requirement for the upfront price payable under a contract to be below a certain threshold for the UCT protections to apply;
• refining the definition of standard-form contract by specifying factors such as repeat usage of a contract template, and whether the small business had an effective opportunity to negotiate the contract; and
• exempting certain clauses that include ‘minimum standards’ or other industry-specific requirements contained in relevant Commonwealth, state or territory legislation from the UCT protections.

Further detail is available here on the Treasury website.

The ACCC has had considerable success in modifying business behavior in relation to UCTs in recent years, but almost always without going to Court, and without any substantive judicial consideration of what is and is not a UCT.

The final form of the new legislative regime is yet to be seen, but it is clear that exposure for UCTs will increase significantly. It is far from clear how a business can, without the benefit of hindsight, decide whether some contractual terms are UCTs or not, given that a term may be fair in its application in some circumstances, but not in others.

For example, automatic renewal, termination and limitation of liability clauses will commonly have a proper business justification in reducing risk so that the business might supply a greater range of goods or services at lower prices, or innovate with new products or services. Working out whether a contractual term is sufficiently balanced and reasonably necessary to protect the business’s legitimate interests is difficult to determine reliably in advance, given the subjective nature of what is ‘unfair’ and circumstances which will be evaluated after the event by the Courts.

Legislation which imposes pecuniary penalties is expected to be sufficiently certain to enable businesses to know what conduct will expose them to a financial penalty. It remains to be seen whether the foreshadowed regime will or can meet that expectation.

Certainly, extended compliance review of a broader range of contracts and contractual terms will be required.