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5 Facts About The New UCT Regime – What You Need To Do Now!

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The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 passed last year made significant changes to the unfair contract terms (UCT) regime and allowed Australian businesses time to prepare. The grace period is ending very soon.

Here is a snapshot of what you need to know:

  1. From 9 November 2023, huge penalties apply for including or giving effect to UCTs in standard form contracts relating to the sale or supply of goods or services or a sale or grant of an interest in land, where at least one party is a consumer or a small business.
  2. The definition of small business has been expanded and will include entities with:
    • up to 100 employees (up from 20 employees) at the time the contract is made; and/or
    • turnover of less than $10 million in the financial year before the contract is made.
  3. A term is unfair if the following three conditions apply:
    • it creates a significant imbalance in the parties’ rights and obligations;
    • it would cause detriment (financial or otherwise) to the disadvantaged party if it were applied or relied on; and
    • is not reasonably necessary to protect the legitimate interests of the advantaged party.
  4. The new laws apply to contracts entered into, renewed or varied on or after 9 November 2023. The existence of the UCT in the contract is enough to expose you to risk of penalties.  You do not need to seek to enforce the unfair term to be at risk.
  5. Potential penalties:
    • for companies (per contravention) up to the greater of:
      1. $50 million;
      2. 3 times the value of the benefit obtained by the conduct; or
      3. 30% of the company’s adjusted turnover during the breach period.
    • for individuals, up to $2.5 million per contravention.

These penalties apply per contravention. This means the penalty could be multiplied by the number of UCTs in the contract, and further multiplied by the number of standard form contracts containing the UCT that have been entered into after 9 November 2023.  The result could be crippling, especially if you are a small business yourself.

Here is what you need to do now:

  1. Review all of your standard form contracts, e.g. franchise agreements, leases, subleases, supply agreements, terms and conditions of trade, to identify all terms that may:
    • create a significant imbalance between parties’ rights and obligations; or
    • cause detriment to one party; and
  2. Consider whether each such term:
    • is necessary to protect a legitimate interest; and
    • goes beyond what is necessary to protect that legitimate interest.

This may involve consultation within your business and may take some time.

  1. Document and keep records of the whole process for each standard form contract, especially the interest you are trying to protect and why it does not go beyond what is necessary to protect that interest.
  2. Delete or amend any potential UCTs, so that they do not go beyond what is necessary to protect your interests;
  3. Lawyer up: Get your lawyers involved at each stage of the process and be prepared to spend time discussing UCTs with your lawyers and within your business.

For more information or assistance with this process, please contact our Corporate & Commercial Lawyers at corporate@mst.com.au or Franchising Lawyers at franchise@mst.com.au.