The Government has introduced reforms to establish civil penalty provisions prohibiting the use of, and reliance on, unfair terms in standard form contracts. The legislation is also designed to ensure that in its agreements as to costs the legal profession complies with the enhanced UCT regime or incurs the proposed penalties.
In the past Australian legislators have faced difficulties in framing consumer protection legislation which does not further complicate the existing complex interactions between statute, the common law, the law of contract and the law of tort.
These difficulties have included, in the context of legal practice, the place of professional standards when the Australian Consumer Law (ACL) applies to the services lawyers provide and the agreements as to costs by which they provide them.
However as a sign of the pressing need to resolve these difficulties the Government recently revived and re-introduced into Parliament legislation that has been a long time incubating.
Enhancements to the UCT regime
Here is the history of the incubation. In November 2016, recognising that small businesses in their contracts often face the same challenges as consumers, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) extended the Unfair Contract Terms (UCT) protections to certain standard form small business contracts.
In November 2018, the then Federal Government released a discussion paper seeking information to review the operation of UCT protections for small business.
The information gathered suggested that:
- while the existing UCT regime had improved protections for small business in certain industry sectors, it would not deter businesses in all of them from using UCT in their standard form contracts;
- some aspects of the current regime appeared to have created ambiguity, uncertainty, and practical difficulties for businesses in complying with the law;
- regulators needed to promote awareness of UCT and to improve the guidance provided to business to support compliance.
As a result, the then Government announced its intention to strengthen the UCT protections.
The Treasury Laws Amendment (Measures for a later Sitting) Bill 2021 was released as an exposure draft. The Bill sought to amend the ACL and the related Australian Securities and Investments Commission Act 2001 (Cth) to strengthen and clarify the existing unfair contract term provisions in both acts, in order to reduce the prevalence of unfair contract terms in consumer and small business standard form contracts. However, the exposure draft was abandoned, and the reforms worked into the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022. That Bill lapsed with the election.
It was an election commitment of the present Government to strengthen Australia’s competition laws. With commendable alacrity therefore on 28 September the Government introduced, read for a first time and moved a second time its Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the Bill). As at 27 October, as uncontroversial legislation, the Bill has passed both houses and awaits Royal Assent.
In his 2nd Reading Speech the Assistant Minister to Competition, Charities and Treasury said of Schedule 1 to the Bill 2022 that there was a risk that a breach of the existing competition law could be seen as an acceptable cost of doing business by some large firms.
The Schedule 1 amendments to the Competition and Consumer Act 2010, including the ACL, will increase the maximum penalty applicable to certain breaches of competition and consumer law bringing the severity of Australia’s penalty regime into line with international jurisdictions.
By strengthening penalties, the Government maintains, Australia will promote competition and better corporate behaviour.
Chapter 1 of the Explanatory Memorandum pp 3-23 gives a detailed explanation of the new law including that applicable to the ACL. The Explanatory Memorandum is accessible at Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 – Parliament of Australia (aph.gov.au)
Schedule 1 to the Bill will commence the day after Royal Assent. Schedule 2 to the Bill strengthens the existing protections against unfair contract terms in the ACL and the Australian Securities and Investments Commission Act 2001.
The Government maintains the Schedule 2 reforms will better protect consumers and small businesses from unfair terms, by reducing their prevalence in standard form contracts.
This is because consumers and small businesses often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts they are offered by a larger party.
The existing unfair contract terms protections in the ACL and the Australian Securities and Investments Commission Act 2001 provide that where a court finds a term is unfair, that term is void. The Government maintains that to date this approach has not provided sufficient deterrence against the use of unfair terms in standard form contracts.
The amendments introduce civil penalty provisions prohibiting the use of, and reliance on, unfair terms in standard form contracts. This will enable a regulator to seek a civil penalty from a court.
The existing definition of an unfair term remains unchanged under the Schedule 2 changes which are the subject of detailed explanation on pages 32-47 of the Explanatory Memorandum.
The amendments in Schedule 2 to the Bill commence on the day after the period of 12 months after the Bill receives Royal Assent. This delay is to enable industry to make any necessary changes prior to commencement.
Conclusion
Small business and medium business are often described as the engine room of the national economy. That justifies this prompt re-introduction and passage of the abandoned reforms.
The re-introduction and passage also justifies lawyers reviewing their agreements as to costs. This is because, except in Western Australia where legal profession regulation legislation is the exclusive tool of regulation, it will be open to a regulator to seek to ensure that in its agreements as to costs the profession complies with the enhanced UCT regime or pay the proposed penalties for not doing so.
As Schedule 1 amendments will now commence the day after Royal Assent; and Schedule 2 amendments will commence on the day 12 months after Royal Assent, the clock is ticking for the legal profession to make any necessary changes.
