ACCC welcomes new penalties for unfair contract laws

The ACCC has welcomed the Treasury Laws Amendment that passed last week as those businesses that breach competition and consumer laws could see themselves facing larger penalties than before.

On October 27, the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed both Houses of Parliament.

The changes consist of two parts; the introduction of penalties and other changes relating to unfair contract terms, and significant increases in maximum penalties for breaches of certain provisions of the Competition and Consumer Act (CCA) including the Australian Consumer Law.

Penalties for unfair contract terms will come into effect the day after 12 months have passed once the bill receives Royal Assent.

The new maximum financial penalties for businesses are the greatest of $50,000,000; three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or if a court cannot determine the benefit, 30 percent of adjusted turnover during the breach period.

Under former penalties, the maximum penalty was $10 million; three times the benefit or 10 percent of relevant turnover.

The changes also include the introduction of penalties for businesses that include unfair contract terms in their standard form contracts with consumers and small businesses.

Gina Cass-Gottlieb, chair at ACCC said, “The increase in penalties should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers.

“These maximum penalty changes will allow the courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”

In terms of breaching contract laws, previously, the courts could declare specific terms of a contract unfair and therefore void, but they were not prohibited and the court could not impose any penalties on businesses that included them in standard form contracts.

Cass-Gottlieb said, “We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply.

“Businesses have 12 months to review and update their standard form contracts before these penalties apply. These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future.”

Cass-Gottlieb added that many small business complaints about big business are about unfair contract terms and it will be an enormous boost to small businesses that there will be a far stronger deterrent against the use of such terms.

The changes will also expand coverage to more small business contracts. The protections will apply to contracts with small business which employ fewer than 100 persons or have an annual turnover of less than $10 million, and will apply irrespective of the value of the contract. The changes also clarify other aspects of the laws, such as more clearly defining ‘standard form contracts'.