Unfair contract penalties increased to protect consumers and small businesses
Tougher penalties for unfair contract terms and consumer law breaches
Legislation has passed federal parliament to increase penalties for unfair contract terms and breaches of consumer law.
Maximum penalties for breaches of consumer law increase from $10 million to $50 million. (Please see Speech on the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, 26 October 2022.)
If the value derived from the breach cannot be determined, the penalty increases from 10 per cent to 30 per cent of the company’s turnover during the period it engaged in the conduct.
The tougher consumer law penalties are contained in the new Treasury Laws Amendment (More Competition, Better Prices) Act 2022, which came into force on receiving royal assent on 9 November 2022.
Unfair contract legal changes apply to new and renewed contracts
Changes to the law on unfair contract terms contained in the same legislation apply to new contracts only, or renewed contracts, made at the end of a twelve month grace period.
Businesses have been given time to adjust to the new unfair contract terms and would be wise to obtain legal advice to avoid any possibility of being caught up in the penalties.
The aim of the new laws is to provide greater protections for consumers, small businesses and franchises from unfair contract terms, by reducing their prevalence in standard form contracts.
Previous unfair contract terms in the laws provided that where a court finds a term unfair, that term is void. The changes introduce civil penalty provisions prohibiting the use and reliance on unfair terms in standard form contracts. (Please see also Beware the non-disparagement clause.)
This will allow a regulator such as ASIC to seek a civil penalty through a court. Existing definitions of an unfair term remain unchanged.
Definition changes to “standard form” and “small business” contracts
There are some changes to the definition of a “standard form contract” and a “small business contract”, which means over the next twelve months businesses should carefully review their contract arrangements.
More small businesses will be covered by the changes. Companies which employ fewer than 100 people or have an annual turnover of less than $10 million will now be included, irrespective of the value of the contract. (Please see ACCC welcomes new penalties and expansion of the unfair contract terms laws, 1 November 2022.)
Reviewing contracts for cyber security and data use
With cyber hacking an increasing problem, these contract reviews should aim to enhance cyber security and include an assessment of the level of data collection, data use and need for long-term data retention.
Regulators will be increasing their scrutiny of cyber security arrangements of businesses, as well as data collection and retention. Penalties could be imposed on businesses that do not meet the required standards. (Please see Cyber risk: Be prepared, ASIC, 15 July 2022.)