Higher penalties and strengthened unfair contract terms regime under amendments to Australian Competition and Consumer Law

The Federal Government has amended the Competition and Consumer Act 2010 (Cth) to increase maximum penalties for contraventions of Australia’s competition and consumer laws and strengthen the unfair contract terms (UCT) regime in the Australian Consumer Law. This is what you need to know.

KEY TAKEAWAYS 

• The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (New Act) significantly increases the maximum penalties for contraventions of competition or consumer law to at least $50 million per contravention.
• The New Act strengthens the UCT regime by making UCTs subject to financial penalties and expanding the application of the prohibition to capture contracts with a wider range of small businesses.
• The consequences of non-compliance of competition and consumer law in Australia are now significantly increased under the New Act. We recommend that businesses:
  • ensure that their compliance programs include training and guidance that is up to date, sufficiently practical and tailored; and
  • identify any standard form contracts which may be used with consumers or small businesses and review them for potentially unfair contract terms.

INCREASED PENALTIES

The increases to the maximum penalties apply to any contraventions of either competition or consumer law occurring from Thursday 10 November 2022 – the day after the New Act received Royal Assent.

For companies, the maximum penalty has been raised to the greater of:

• $50 million;
• three times the value of the benefit obtained; or
• 30% of the company’s adjusted turnover during the breach turnover period for the offence.¹

For individuals, the maximum penalty has been raised to $2.5 million.

The following table summarises the increases to maximum civil penalties made by the New Act.

Summary of maximum penalty changes (being the greater of)

In a media release dated 1 November 2022,² ACCC Chair Gina Cass-Gottlieb stated that the increased penalties “should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers”. Ms Cass-Gottlieb also observed the increased penalties “will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders”.

The Federal Government is anticipating that higher penalties will be awarded by Courts as a result of these changes. This is evident from the 2022-23 Budget, which forecasts an additional $62.6 million in receipts attributed to these penalty increases over the 4 years from 2022–23.³

Even without changes to the maximum penalties, the actual penalties awarded under consumer law have been increasing significantly over the 10 years since consumer law was introduced, with record penalties, including some over $100 million, awarded in recent years.

It is likely that the trend of record-breaking fines for contraventions of Australia’s competition and consumer laws will continue over coming years as more cases come before the Courts under the new penalty regime.

PENALTIES FOR UCTs

The New Act also significantly strengthens the UCT regime that applies under consumer law. Businesses will have 12 months to prepare for these changes, as it will come into effect on 9 November 2023 and apply to:

• new contracts made on or after 9 November 2023; and
• existing contracts that are renewed or specific terms that are varied on or after 9 November 2023.

The most significant of the changes under the updated regime are:

• Increasing the consequences of non-compliance with the UCT regime: previously, UCTs were not subject to penalties, but were void. Under the New Act, penalties apply to proposing, applying or relying on terms which are unfair in standard form contracts with consumers or small businesses..
• Expansion of definition of ‘small business contract’: the new UCT prohibition will apply to standard form contracts with a larger number of small businesses. A small business is now defined as a business which employs fewer than 100 persons or has turnover of less than $10 million (or both). Previously, this applied only to businesses that employed fewer than 20 persons and where the upfront price payable under the contract was less than $300,000 for shorter contracts, or $1,000,000 for multi-year contracts.

In describing these amendments, Ms Cass-Gottlieb states that the changes have “strengthened” UCT laws to further protect consumers and small businesses from larger companies using “take it or leave it” terms to “take advantage of [an] imbalance in bargaining power”.

In addition to these changes, the New Act also provides further clarity around when a contract will be a standard form contract by setting out matters the Court must take into account, including:

• whether a party has previously entered into another contract that is the same or substantially similar (and if so, the number of times this has been done); and
• when determining whether a party was able to genuinely negotiate a contract, a court is to disregard instances where a party:
  • has negotiated minor or insubstantial changes to the terms of a contract;
  • is given the ability to select from a pre-determined range of terms within a contract; and
  • to another similar contract has been given an effective opportunity to negotiate the terms of that contract.

TAKING ACTION TO PREPARE FOR THE STRENGTHENED UCT REGIME

The combination of the new UCT prohibition and increased maximum penalties significantly increases the risks to businesses in relation to their unfair contract terms. As the ACCC will be keen to flex its new regulatory powers, we predict that the ACCC will pursue potentially substantial penalties against businesses that contravene the new prohibition. As noted by Ms Cass-Gottlieb describes, the amended laws “provide a stronger incentive for businesses to comply” with prohibitions against UCTs to avoid potentially significant penalties.

To mitigate these risks, it is increasingly important that companies are vigilant in minimising the risk of becoming involved in an ACCC investigation or enforcement proceeding.

1. The “turnover period” means the longer of the following periods: 12 months ending at the end of the month in which the contravention ends; or the length of time between the company beginning and ceasing to commit the contravention.
2. https://www.accc.gov.au/media-release/accc-welcomes-new-penalties-and-expansion-of-the-unfair-contract-terms-laws
3. https://budget.gov.au/2022-23-october/content/bp2/download/bp2_2022-23.pdf - page 15.