If you supply goods or services to a broad range of clients or customers, you may be routinely doing so using standard terms and conditions, or a standard form contract of agreement. Sometimes, these terms and conditions are to be found in proposals, quotes, invoices or receipts – and frequently in small print on the back of the document. They could also be on your website or your social media. In other cases, they can be stand-alone forms that your customers are asked to sign, or accept, at the same time as an order is placed. Chances are that it is some time since you have needed to look at your standard forms.
Well, here is the layman’s guide to important changes to the Unfair Contract Terms regime, the UCT, that have drawn most small to medium enterprises who buy or sell, using standard contract terms, into a net involving increased exposure to commercial risk and severe penalties for non-compliance.
Here’s what you need to know:
1. When do the changes take effect?
The changes to the UCT regime take effect from 10 November 2023 and apply to contracts entered into, or renewed, or varied after that date.
2. Who is protected by the changes?
The changes are intended to significantly improve the protection of consumers and small businesses. A “small business” is likely to be a lot larger than you might think: previously the definition applied to a business that employs fewer than 20 people. From 10 November, a small business is one that employs fewer than 100 people, or that has a turnover in the previous 12 months of less than $10 million.
3. What is a “standard form contract”?
Previously, a court would consider matters such as whether a party had an opportunity to negotiate, or select terms from a number of options, or whether parties to another contract had the opportunity to negotiate. Now, courts will simply look at whether or not there are other contracts in substantially the same terms and how many of them there are. Unless the contract relates to certain financial services, or financial products (in which case there is a cap of $5 million), there are no longer any contract value thresholds.
4. A reminder on unfair contract terms
While there are no changes to the test of unfairness, it can be said that a contract term is unfair if:
- It amounts to a significant imbalance in the parties’ rights and obligations;
- It is not reasonably necessary to protect the legitimate interests of the party relying on it;
- It would cause financial or other detriment if it were to be enforced.
Key problem areas include automatic renewal terms; termination or suspension and limitation of liability rights available to only one of the parties; and rights to vary the contract without notice.
5. What if I continue to use a standard contract with unfair contract terms? Previously, an unfair contract term was simply rendered void. From 10 November, the use of UCTs is additionally prohibited and will attract severe penalties:
- Individuals can be fined up to $2.5 million;
- Corporations can be fined the greater of $50 million, or three times the value of any benefit received, or 30% of adjusted turnover during the period of the breach (or a minimum of 12 months).
6. What should you do now?
Immediately undertake a review of all of your standard form contracts and other standard documents to determine if they are included in the UCT regime;
- Determine if any of your standard forms are used with customers or suppliers with fewer than 100 employees or with an annual turnover of less than $10 million – if you don’t know then assume yes;
- Check to see if your standard forms contain any UCTs;
- Alert your staff to the changes and ensure that offending documents are removed from your systems by 9 November.
If you would like us to review your standard form contracts, please call 1300 656 141 or email email@example.com.