Updates to the Unfair Contract Terms Regime - new year, new terms?

22 January 2024

In late 2023, the application of the ‘unfair contract term’ regime contained within the Australian Consumer Law (the ACL) was expanded on account of the implementation of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth).

What does this mean for councils and local government entities?

The expanded unfair contract terms regime (the UCT Regime) applies to:

  • standard form contracts entered into or renewed on and from 9 November 2023; and
  • terms of standard contracts varied after this date,

where the person to whom the contract is being offered to is a ‘small business’.

A ‘small business’ is any entity which employs 100 people or less and has an annual turnover of less than $10 million. Previously, a ‘small business’ was limited to entities with fewer than 20 employees. Accordingly, the UCT Regime now has significantly greater application.

Whilst this expanded definition now means more councils in South Australia may fall within the ‘small business’ definition and now enjoy the protections offered by the expanded regime, the changes will also apply to a wider group of suppliers to local government.

Accordingly, we encourage our clients to review their supplier network, giving consideration to procurement processes, to ensure that potential risks arising out of the UCT Regime are appropriately managed.

What is a Standard Form Contract?

The ACL does not define a ‘standard form contract’. Previously, a standard form contract was any agreement prepared by one party provided on a ‘take it or leave it’ basis (often a contract that is repeatedly used with customers/consumers, without any change to, or negotiation of the terms).

A contract is presumed to be a ‘standard form contract’ and as such, the party who prepared it must prove that it isn’t. Relevantly, a contract may now also be considered a ‘standard form contract’ where:

  • one party has all or most of the bargaining power; or
  • any opportunity for a party to negotiate amendments is minor or insubstantial; or
  • an opportunity for a party to select a term from a range of options set by the other party; or
  • some, but not all, parties to separate ‘standard form contracts’ are given the opportunity to negotiate their terms.

Councils use a number of standard form contracts with their suppliers, most-frequently, standard terms of supply or trade with suppliers.

What is an ‘unfair’ contract term?

An unfair contract term can be any term which meets the following ‘test’:

  • it gives rise to a significant imbalance in the rights and obligations of the parties to the contract;
  • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the contract term; and
  • it would be detrimental (financial or otherwise) if the term was to be applied.

Whether a contract term is ‘unfair’ is a matter of fact and degree which involves the consideration of the whole of a contract as well as the circumstances in which the contract was offered and accepted.

Importantly, a party does not need to have suffered a loss for a term to be ‘unfair’.

By way of general guidance, contract terms which may, or may not, be considered to be unfair will usually involve unilateral or one- sided rights.  Such examples include:

  • limitations of liability, indemnities, or termination rights, which favour one party;
  • rights granted to one party and not the other (eg unilateral renewal or termination for convenience rights).

What next?

We recommend that Councils and local government entities identify and review their ‘standard form contracts’ in light of the expanded regime as well as reviewing their procurement processes to best mitigate the risk of being pursued for unfair contract terms (including the significantly increased penalties) under the expanded UCT Regime.

Do not hesitate to contact us if we can assist further:

Michael Kelledy on 08 8113 7103 or mkelledy@kelledyjones.com.au

Zinta Docherty on 08 8113 7112 or zdocherty@kelledyjones.com.au

Alexia Wright on 08 8113 7107 or awright@kelledyjones.com.au

Jock Denehey on 08 8113 7107 or jdenehey@kelledyjones.com.au