Here’s what you should know about law changes regarding Unfair Contact Terms (UCT’s) that came into effect on 9 November 2023.
From this date, proposing, using or relying on unfair contract terms in standard form contracts will be banned and new penalties for breaches of the law will apply.
The changes will allow courts to impose substantial penalties on business and individuals who include unfair terms in their contract.
What is considered unfair?
Contract terms are deemed unfair if they:
- Cause a significant imbalance in the rights and obligations of the parties under the contract
- Are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term, and
- Would cause financial or other harm to the other party if enforced.
In deciding whether a term is unfair, a court can consider any matters it thinks relevant but it must consider the contract as a whole and whether the term is transparent.
The law sets out examples of terms that may be unfair, including:
- Terms that allow one party (but not the other) to avoid or limit their responsibilities under the contract
- Terms that allow one party (but not the other) to end the contract
- Terms that penalise one party (but not the other) for breaching or ending the contract
- Terms that allow one party (but not the other) to change the terms of the contract.
What are the penalties for a breach?
The maximum financial penalties for businesses under the new unfair contract terms law 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 per cent of adjusted turnover during the breach period.
The maximum penalty for an individual is $2.5 million.
Furthermore, if a court decides that a term is unfair, then that term will become void, meaning it no longer applies to the parties to the contract and this could jeopardise any asset security, collection cost recovery etc.
What should you do?
Review your contracts as soon as you can and get expert help. The price of getting things wrong could be significant.
Even if you have had terms drafted by EC Credit Control or a lawyer in the past, you may need to update your terms to comply.
Connect with your local EC Credit Control Business Support Specialist who will work with you to review your existing contracts and PPS registrations and advise you on what (if any) changes you need to make with a proposal to remedy these for you.
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Get more information
To get more information call us on 1300 361 070 or fill in the form below and we will be in touch.
