Australia Significantly Increases Competition and Consumer Law Penalties; Expands "Unfair Contract Terms" Regime
Australia has significantly increased penalties for competition and consumer law breaches and also expanded the scope of the law that prohibits unfair contract terms ("UCT").
The penalty increases take effect immediately, while there is a 12-month delay before the UCT changes take effect, providing companies time to make any necessary changes to their standard form contracts.
Penalty Increases
The penalties for competition and consumer law breaches, including the new expanded UCT regime described below, are now, for each breach, the greater of:
- $50 million (up from $10 million);
- 3 times the value of the benefit obtained (if it can be determined); or
- 30% of the company's adjusted Australian revenue during the period of the breach (a minimum of 12 months).
Penalties for individuals also have increased to $2.5 million (up from $500,000).
The increased penalties apply to all breaches of competition law, from "hardcore" breaches such as cartel conduct (which is prohibited regardless of its effect) to exclusive contracts which require a consideration of their competitive impact.
UCT Breaches
Australia's UCT law, which went into effect for standard form contracts with consumers in 2010, enabled courts to declare void any terms that are "unfair." In 2016, Australia extended the UCT law to apply to standard form contracts under a specific monetary threshold where one party is a small businesses (less than 20 employees).
A standard form contract term is "unfair" if:
- It causes a significant imbalance between the parties;
- Is not reasonably necessary to protect a legitimate interest; and
- Would cause detriment if relied on.
Despite that expansion of the UCT law, the government believed that unfair terms were still "prevalent" and that it needed to "introduce strong deterrents," leading to the latest UCT amendments empowering courts to impose the above monetary penalties.
The amendments also will broaden the reach of the UCT regime, expanding the definition of small business to include businesses with up to 100 employees or under $10 million in annual turnover. The new laws also empower courts to rewrite commercial standard form contracts, including the power to void, vary, or refuse to enforce (wholly or in part) UCTs.
The UCT amendments will further focus the Australian Competition and Consumer Commission's ("ACCC") enforcement on UCTs. This year alone the ACCC has negotiated changes to contracts involving small business in the following industries: gaming venues, printers and related software, and chicken processing. Now is a good time for companies that sell to small businesses and consumers in Australia to review and update their standard form contracts before the UCT amendments take effect on November 10, 2023.
