Authors: Belinda Marsh, Partner and Ellysia Joannidis, Associate
From 9 November 2023, there will be a change to the unfair contract terms regime which will mean that Courts will be able to impose significant penalties on businesses that include unfair terms in their standard form contracts. The changes will also give the Courts more powers including the power to issue injunctions and make orders to address or prevent harm caused by unfair contract terms.
The changes arises under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Act) which will introduce several updates to the provisions of the Competition and Consumer Act 2010 (Cth) (CCA) which will affect standard form consumer contracts and small business contracts:
(i) entered into from 10 November 2023; or
(ii) renewed or varied from 10 November 2023.
Charities and not-for-profits are not exempt from the regime, therefore all charities and not-for-profit organisations that issue standard form contracts that will be captured by the regime (and which may not previously have been so affected) are strongly encouraged to review their standard form contracts to ensure compliance.
Summary of the changes
The regime will apply to standard form contracts issued by an organisation in circumstances where at least one party to the contract (that is, either the customer or the supplier):
- employs fewer than 100 persons (part time employees will be included as an appropriate fraction of a full-time equivalent employee); or
- has an annual turnover during the previous financial year of less than $10 million.
In summary, a term of a standard form consumer or small business contract is unfair if it:
- would cause a significant imbalance in the parties’ rights and obligations;
- is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by such term; and
- would cause detriment (financial or otherwise) to a party if the term were to be applied or relied on.
The Act does not change the unfairness test. Rather, it expands the class of contracts that are covered by the unfair contract term protections under the CCA and establishes a civil penalty regime prohibiting the proposal, use of, or reliance on unfair contract terms in standard form consumer and small business contracts.
The new maximum penalty for breach by a body corporate will be the greatest of $50 million (or $2.5 million for non-body corporate); if the court can determine the value of the benefit obtained—three times the value of that benefit; or if the court cannot determine the value of the benefit obtained—30% of the body corporate’s adjusted turnover during the breach turnover period for the offence, act or omission.
School enrolment form case
A recent example of the application of the unfair contracts regime in the charities and not-for-profits space involved the issue of enrolment contracts by a school in Queensland.
In Brindabella Christian Education Ltd ACN 100 229 669 v Respondent XD 561 of 2021 (Civil Dispute) [2022] ACAT 37, the ACT Civil and Administrative Tribunal found that a standard school enrolment contract was a consumer contract for the purpose of the Australian Consumer Law. The contract had been drafted by the school and was offered to parents on a take it or leave it basis.
The provision in question provided that the child’s parents would have to pay an extra term’s fees if they did not give a full term’s written notice of their intention to withdraw the child from the school. The notice would have needed to have been given to the school by the first day of the term, which the parents did not do. As a result, a claim was brought against the parents by the school for a full term’s worth of fees.
The Tribunal considered that the notice term, in the context of the contract, allowed the school to unilaterally vary fees without prior notice and without giving parents an opportunity to withdraw their child from the school, without any penalty. The Tribunal was satisfied that the provision put the parents at “a significant disadvantage” and did not think the notice term was “sufficiently transparent”. The school’s arguments that the notice term was necessary for forward planning and budgeting purposes was disregarded. Ultimately, the notice term clause upon which the school’s claim was founded was determined to be unfair and the application was dismissed.
As the decision concerns consumer laws that apply across Australia, it acts as an important reminder to all schools, as well as other institutions, which use standard form contracts as part of their operations. Now with the upcoming changes to the unfair contract terms regime, such businesses should review their standard form contracts and ensure they are compliant to avoid potentially facing substantial penalties and enforcement action.
