The evolution of the unfair contract terms regime in small business contracts

In late March 2019 the Australian Government announced its intention to strengthen the current laws in place protecting small businesses from unfair contract terms (UCTs). In this article we take a brief look at the history of the UCT regime following the introduction of changes to the Australian Consumer Law in late 2016, together with the recent proposals which, if passed, would strengthen the UCT regime including as to enforcement and penalties.

How did we get here? A brief history of the UCT regime

On 12 November 2016, changes to the Australian Consumer Law intended to protect small businesses from unfair terms in standard form contracts came into effect.

In the year leading up to the commencement of these changes, the Australian Competition & Consumer Commission (ACCC) engaged with a number of businesses across the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management and agriculture industries to review standard form contracts and identify terms that may be unfair in business-to-business agreements. The ACCC reviewed 46 standard form contracts from businesses such as Australia Post, Bakers Delight, Coca-Cola Amatil, Facebook, Fairfax, Google, News Limited, Optus, Scentre Group (owner of Westfield shopping centres), UBER, Vicinity Centres, and Vodafone.

Following this review, the ACCC published a report containing some common terms of concern identified in each industry as well as the changes that businesses made to their contracts as a result of the review.

On 6 September 2017, only nine months after these changes came into effect, the ACCC commenced proceedings against waste management company JJ Richards & Sons alleging that it had entered into standard form contracts containing unfair terms. On 13 October 2017, the Federal Court issued consent orders determining that eight terms in these small business contracts were unfair and therefore void under the Australian Consumer Law.¹

On 15 September 2017, the ACCC commenced proceedings against Servcorp and two of its subsidiaries in respect of unfair terms in contracts with small businesses. Consent orders were issued in mid-2018 determining that these contracts contained numerous unfair terms and so were void.

Shortly after the commencement of these cases, two other companies (Wisdom Properties Group and Cardtronics Australasia) resolved proceedings brought against them by the ACCC by entering into court enforceable undertakings to not enforce the unfair terms in their contracts and to remove those terms from future contracts.

On 31 August 2018, the ACCC Chair, Rod Sims, released a media statement voicing his discontent with the current UCT regime, including the fact that unfair contract terms are not illegal and that the ACCC cannot seek penalties where the court has declared a UCT void nor can the ACCC issue infringement notices for probable UCTs.

During November to December 2018, a review of changes to the Australian Consumer Law was undertaken to assess their effectiveness and to determine whether further changes were required. 

What are the most recent proposals to change the UCT regime?

The answer to this came on 28 March 2019 when the Australian Government announced its intention to introduce amendments to strengthen the current laws protecting small businesses from UCTs. The media release stated that the current regime did not provide a strong enough deterrent against the inclusion of UCTs and that the current legislation seemed to have created ambiguity and difficulties for businesses in complying with the law. The options presented to amend the Australian Consumer Law include:

• Making UCTs illegal and attaching civil penalties to breaches;
• Changing the definition of ‘small business’ from ‘a businesses that employs less than 20 people and the upfront price payable under the contract is less than $300,000 in a single year or $1 million if the contract runs for more than 12 months’ to ‘a business that employs fewer than 100 persons at the time the contract was entered into or had an annual turnover of less than $10 million’;
• Removing the upfront price payable value threshold;
• Clarifying the definition of ‘standard form contract’;
• Extending the protections to government contracts; and
• Considering exempting ‘minimum’ standards as prescribed by state and territory laws.

These proposed amendments are subject to a Regulation Impact Process and the media statement advised that regulators will be asked to revise UCT guidance and work with industry to improve awareness of the UCT provisions. 

The Opposition also indicated in January 2019 that, if elected, a Shorten Labor Government would make UCTs illegal, introduce penalties for breach, and expand the definition of small businesses eligible for protection from the regime.

What should businesses consider as the UCT regime evolves?

Businesses that enter into standard form contracts with small businesses need to be on notice that the ACCC will undoubtedly continue with their focus to monitor compliance and take enforcement action where required. If in doubt, business should note that the ACCC’s compliance and enforcement policy released on 26 February 2019 lists ‘ensuring that small businesses receive the protections under the [Competition and Consumer Act] with a focus on… unfair contract terms’ and that ‘competition and fair trading issues in the agriculture sector, with a focus on unfair contract terms in supply agreements and the viticulture sector’ are amongst the ACCC’s 2019 priorities.

It is clear from the 2017 and 2018 cases that the ACCC is not hesitant to utilise the powers available to it as regulator to enforce the UCT provisions and that, if their powers are increased through these proposed amendments, they will likely continue to do so. To prepare, businesses that enter into standard form contracts with small businesses and consumers should consider undertaking an inventory and audit of their standard form contracts. 

Please contact any of the Dentons team members listed on this article if your business has any queries in regards to complying with the UCT regime or any other issue arising under the Australian Consumer Law.