Australia: Impact of unfair contracting law changes on the transport sector

Impact of unfair contracting law changes on the transport sector

The unfair contract laws aim to stop businesses from agreeing to or relying on unfair terms against small businesses.

New laws came into effect in November last year, which amended the unfair contract terms regime under the Australian Consumer Law (ACL). These changes include an expansion of the small business contract threshold, additions to the determination of a 'standard form contract' and an increase in penalties and remedies available to courts.

As a result of these changes, businesses in the transport sector should review their contracts to ensure that they don't contain terms that are likely to be considered 'unfair' and potentially attract a monetary penalty, which for a company, could be as high as $50 million or three times the value of the "reasonably attributable" benefit obtained from the conduct (whichever is greater).

In this article, we provide an overview of the changes to the ACL unfair contract terms regime and highlight clauses that should be given extra attention by businesses in the transport sector when reviewing their contracts.

Overview of the changes to the ACL unfair contract terms regime

The main changes to the ACL unfair contract terms regime are:

• an expansion of the small business contract threshold
• additional circumstances included in the determination of a 'standard form contract'
• increases in penalties and remedies available to the court.

These changes apply to:

• standard form contracts made or renewed on or after 9 November 2023
• a term of a contract that is varied or added on or after 9 November 2023.

Expansion of the small business contract threshold

One of the main changes to the unfair contract terms regime is the expansion of the "small business contract" definition.

As of November 2023, a party to a contract will be covered by the unfair contract terms protections provided they made the relevant contract while carrying on a business and at the time:

• employed fewer than 100 people
• had an annual turnover of less than $10 million in the year prior to entering into the contract.

The above has replaced previous provisions which applied when one of the contracting parties had fewer than 20 employees and where the upfront price payable was less than $300,000 (or $1,000,000, if the contract was for a term of more than 12 months).

What contracts are excluded?

For transport operators, contracts for the carriage of goods by ship are explicitly excluded from the unfair contract terms regime under the ACL. Such contracts will continue to be governed by the Australian carriage of goods by sea regime.

Additional circumstances included in the determination of a 'standard form contract'

Under the new legislation, when determining whether a contract is a 'standard form contract', the court will now be required to consider whether one of the parties has made another contract in the same or substantially similar terms and, if so, the number of contracts that party has made.

Similarly, there is now explicit acknowledgement in the law which recognises that a contract may be deemed to be a 'standard form contract' despite there being an opportunity for a party to:

• negotiate changes to terms that are minor or insubstantial in effect
• select a term from a range of options determined by another party
• another contract or proposed contract to negotiate terms of the other contract or proposed contract.

Changes to penalties and remedies

A monetary penalty now applies to any person who makes a contract, to which the law applies, that contains an unfair contract term and/or applies or relies on, or purports to apply or rely on, the unfair contract term in that contract. This penalty is in addition to the already existing law that renders void (i.e., treated as if it never existed) a contract term declared to be unfair.

The maximum penalties that could apply if as a company you are found to have entered or sought to rely upon a term that is found to be unfair are the greatest of:

• $50 million
• three times the value of the "reasonably attributable" benefit obtained form the conduct, if the court can determine this
• 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.

In addition to the new penalties, there are also new remedies available to the court. For example, a court will be permitted to make an order preventing a party from including a term in any relevant contract in the future that is the same, or substantially similar, in effect to a term declared unfair.

Key clauses to review

Businesses in the transport sector should review their contracts, paying specific attention to:

• variations – does the contract allow one party to unilaterally vary the contract (for example, a unilateral price variation clause), without a corresponding right to the other party?
• indemnities – is a party required to provide an indemnity for losses outside of their reasonable control? Is the indemnity unilateral? Does it apply to a broad or unclear range of loss?
• limitation of liability – is the clause unilateral? Does the clause exclude the liability of a party even when the loss is caused by their own misconduct and/or negligence?
• termination – does the contract provide the breaching party with the opportunity to rectify the breach before a right to terminate arises? Are the grounds for termination reasonable?
• automatic renewal – does the contract provide for renewal without notice or reasonable notice?

In addition to the above, any term that:

• causes a significant imbalance in the parties' rights and obligations
• is not reasonably necessary to protect the legitimate interests of the advantaged party
• would cause detriment (financial or otherwise) to a party,

is also likely to be unfair. Any such terms may need to be amended so that they no longer have the above effect(s).

Key takeaways

As these laws are yet to be tested in the courts, it is still unclear exactly how they will be interpreted and implemented. Businesses in the transport sector should continue to review and make amendments to their contracts as the effect of the laws become clearer.

For now, absolute limitations on liability and provisions that provide one party with unilateral rights which, if exercised, could significantly change the terms of the contract or the rights of the other party will almost certainly be in the firing line. ACCC Deputy Chair, Mike Keogh, has said in relation to the new laws that "previously there was little motivation for businesses to comply with law." With the new penalties and remedies available, businesses in the transport sector should have all the motivation they need to ensure they comply.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.