By Irene Kim and Gavin Parsons

Business compliance is set to become stricter with higher penalties. On 10 November 2023, new laws will commence allowing the Federal Court to impose maximum penalties relating to unfair contract terms (UCTs). This new amendment, which expands the existing UCTs regime, aims to protect small businesses by widening the regime's reach and increasing the penalties so that business do not exploit imbalanced bargaining power.

What are the new changes?

Currently the UCTs regime is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). However, it is expanding and the following are the key amendments:

• The new regime will apply to contracts involving businesses with less than 100 employees OR with a turnover for less than $10 million.

• The new regime can capture various types of contracts including consumer contracts, sale/lease of property, supply of goods and services, contracts with sub-contractors, retail leases and terms of trade.

What makes a contract term 'unfair'?

In general, UCTs cause significant imbalances in the rights and obligations of parties, are not reasonably necessary to protect the interests of the party who would be advantaged by such a term, and would cause detriment to the other party if the term were applied or relied on.

Key examples of UCTs are:

1. Automatic renewal? terms that lets the business renew the contract, unless customers cancelled within a specified time period (days/weeks/months).

2. Disproportionate termination ? terms which enable a business to terminate the contract in a much wider range of circumstances without notice to the consumer.

3. Limitation of liability and indemnity ? terms which limit the business' liability or requires the customer to indemnify the business without corresponding rights for the customer.

4. Termination fees ? terms which requires customers to pay extensive exit fees, including charges which the business could set unilaterally.

5. Payment before delivery ? requires customers to pay the business for goods or services under the contract irrespective of whether the business had delivered the good or service, and requires customers to pay the price for the good or service before delivery.

What are the Consequences?

The court has the power to declare UCTs void and unenforceable. The new regime further empowers this authority, also allowing the courts to issue injunctions.

Additionally, the new regime will allow for significant financial penalties to be ordered against businesses that seek to impose UCTs on customers. These include:

Our Recommendations for Businesses

The new amendments will be applied to contracts made on or after 9 November 2023, and to any existing contracts that have been reviewed on or after 9 November 2023. Given the serious consequences, businesses should minimise the risk of incorporating UCTs into contracts. The team at Gavin Parsons and Associates highly advise our clients to proactively review relevant contracts and make changes if necessary. Additionally, businesses can do the following to refrain from and/or minimise the incorporating of UCTs:

• Ensure terms are transparent, presented clearly and simply to any parties affected;

• Ensure the parties' rights and obligations are balanced, and justify how any UCTs are reasonably necessary to protect the interests of the business seeking to enforce them;

• Carefully and precisely draft agreements and allow parties to negotiate so that potential UCTs can be removed from the contract easily without affecting the entire contract;

• Test whether conduct and contractual terms align to industry standards and codes; and

• Review sales approaches and tactics, whether contractual arrangements and risks taken on by the other party are adequately explained to customers during the sales process, and whether the use of commissions or incentives for sales staff is appropriate.

If you require further information and assistance in understanding and/or complying with your new legal obligations as business owners, please contact Gavin Parsons or the team at Gavin Parsons and Associates on (02) 9262 4471 or at gavin@gpalaw.com.au.

Disclaimer

The content of this paper is a general guide only, and should not be relied on as legal advice. Precautions have been taken to ensure that the information is accurate as at the time of publication, however, Gavin Parsons and Associates does not guarantee, and accepts no legal liability whatsoever arising from or in connection with, the accuracy, reliability, currency or completeness of any material contained in this paper.

This paper is not to be used as a substitute source of legal advice. If you would like to ensure whether your contract has any UCTs, we would strongly recommend obtaining appropriate legal advice relevant to your particular circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

By Irene Kim and Gavin Parsons

Business compliance is set to become stricter with higher penalties. On 10 November 2023, new laws will commence allowing the Federal Court to impose maximum penalties relating to unfair contract terms (UCTs). This new amendment, which expands the existing UCTs regime, aims to protect small businesses by widening the regime’s reach and increasing the penalties so that business do not exploit imbalanced bargaining power.

What are the new changes?

Currently the UCTs regime is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). However, it is expanding and the following are the key amendments:

• The new regime will apply to contracts involving businesses with less than 100 employees OR with a turnover for less than $10 million.

• The new regime can capture various types of contracts including consumer contracts, sale/lease of property, supply of goods and services, contracts with sub-contractors, retail leases and terms of trade.

What makes a contract term ?unfair’?

In general, UCTs cause significant imbalances in the rights and obligations of parties, are not reasonably necessary to protect the interests of the party who would be advantaged by such a term, and would cause detriment to the other party if the term were applied or relied on.

Key examples of UCTs are:

1. Automatic renewal? terms that lets the business renew the contract, unless customers cancelled within a specified time period (days/weeks/months).

2. Disproportionate termination ? terms which enable a business to terminate the contract in a much wider range of circumstances without notice to the consumer.

3. Limitation of liability and indemnity ? terms which limit the business’ liability or requires the customer to indemnify the business without corresponding rights for the customer.

4. Termination fees ? terms which requires customers to pay extensive exit fees, including charges which the business could set unilaterally.

5. Payment before delivery ? requires customers to pay the business for goods or services under the contract irrespective of whether the business had delivered the good or service, and requires customers to pay the price for the good or service before delivery.

What are the Consequences?

The court has the power to declare UCTs void and unenforceable. The new regime further empowers this authority, also allowing the courts to issue injunctions.

Additionally, the new regime will allow for significant financial penalties to be ordered against businesses that seek to impose UCTs on customers. These include:

Our Recommendations for Businesses

The new amendments will be applied to contracts made on or after 9 November 2023, and to any existing contracts that have been reviewed on or after 9 November 2023. Given the serious consequences, businesses should minimise the risk of incorporating UCTs into contracts. The team at Gavin Parsons and Associates highly advise our clients to proactively review relevant contracts and make changes if necessary. Additionally, businesses can do the following to refrain from and/or minimise the incorporating of UCTs:

• Ensure terms are transparent, presented clearly and simply to any parties affected;

• Ensure the parties’ rights and obligations are balanced, and justify how any UCTs are reasonably necessary to protect the interests of the business seeking to enforce them;

• Carefully and precisely draft agreements and allow parties to negotiate so that potential UCTs can be removed from the contract easily without affecting the entire contract;

• Test whether conduct and contractual terms align to industry standards and codes; and

• Review sales approaches and tactics, whether contractual arrangements and risks taken on by the other party are adequately explained to customers during the sales process, and whether the use of commissions or incentives for sales staff is appropriate.

As always, please feel free to share this article with your colleagues, friends and clients as we know everyone will appreciate this useful resource. If you require further information and assistance in understanding the UCTs, please contact Gavin Parsons or the team at Gavin Parsons and Associates on (02) 9262 4471 or at gavin@gpalaw.com.au.

Disclaimer

The content of this paper is a general guide only, and should not be relied on as legal advice. Precautions have been taken to ensure that the information is accurate as at the time of publication, however, Gavin Parsons and Associates does not guarantee, and accepts no legal liability whatsoever arising from or in connection with, the accuracy, reliability, currency or completeness of any material contained in this paper.

This paper is not to be used as a substitute source of legal advice. If you, your colleagues, friends or clients would like to ensure whether your contract has any UCTs, we would strongly recommend obtaining appropriate legal advice relevant to the particular circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

By Irene Kim and Gavin Parsons

Business compliance is set to become stricter with higher penalties. On 10 November 2023, new laws will commence allowing the Federal Court to impose maximum penalties relating to unfair contract terms (UCTs). This new amendment, which expands the existing UCTs regime, aims to protect small businesses by widening the regime’s reach and increasing the penalties so that business do not exploit imbalanced bargaining power.

What are the new changes?

Currently the UCTs regime is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth). However, it is expanding and the following are the key amendments:

• The new regime will apply to contracts involving businesses with less than 100 employees OR with a turnover for less than $10 million.

• The new regime can capture various types of contracts including consumer contracts, sale/lease of property, supply of goods and services, contracts with sub-contractors, retail leases and terms of trade.

What makes a contract term ?unfair’?

In general, UCTs cause significant imbalances in the rights and obligations of parties, are not reasonably necessary to protect the interests of the party who would be advantaged by such a term, and would cause detriment to the other party if the term were applied or relied on.

Key examples of UCTs are:

1. Automatic renewal? terms that lets the business renew the contract, unless customers cancelled within a specified time period (days/weeks/months).

2. Disproportionate termination ? terms which enable a business to terminate the contract in a much wider range of circumstances without notice to the consumer.

3. Limitation of liability and indemnity ? terms which limit the business’ liability or requires the customer to indemnify the business without corresponding rights for the customer.

4. Termination fees ? terms which requires customers to pay extensive exit fees, including charges which the business could set unilaterally.

5. Payment before delivery ? requires customers to pay the business for goods or services under the contract irrespective of whether the business had delivered the good or service, and requires customers to pay the price for the good or service before delivery.

What are the Consequences?

The court has the power to declare UCTs void and unenforceable. The new regime further empowers this authority, also allowing the courts to issue injunctions.

Additionally, the new regime will allow for significant financial penalties to be ordered against businesses that seek to impose UCTs on customers. These include:

Our Recommendations for Businesses

The new amendments will be applied to contracts made on or after 9 November 2023, and to any existing contracts that have been reviewed on or after 9 November 2023. Given the serious consequences, businesses should minimise the risk of incorporating UCTs into contracts. The team at Gavin Parsons and Associates highly advise our clients to proactively review relevant contracts and make changes if necessary. Additionally, businesses can do the following to refrain from and/or minimise the incorporating of UCTs:

• Ensure terms are transparent, presented clearly and simply to any parties affected;

• Ensure the parties’ rights and obligations are balanced, and justify how any UCTs are reasonably necessary to protect the interests of the business seeking to enforce them;

• Carefully and precisely draft agreements and allow parties to negotiate so that potential UCTs can be removed from the contract easily without affecting the entire contract;

• Test whether conduct and contractual terms align to industry standards and codes; and

• Review sales approaches and tactics, whether contractual arrangements and risks taken on by the other party are adequately explained to customers during the sales process, and whether the use of commissions or incentives for sales staff is appropriate.

As always, please feel free to share this article with your colleagues, friends and clients as we know everyone will appreciate this useful resource. If you require further information and assistance in understanding the UCTs, please contact Gavin Parsons or the team at Gavin Parsons and Associates on (02) 9262 4471 or at gavin@gpalaw.com.au.

Disclaimer

The content of this paper is a general guide only, and should not be relied on as legal advice. Precautions have been taken to ensure that the information is accurate as at the time of publication, however, Gavin Parsons and Associates does not guarantee, and accepts no legal liability whatsoever arising from or in connection with, the accuracy, reliability, currency or completeness of any material contained in this paper.

This paper is not to be used as a substitute source of legal advice. If you, your colleagues, friends or clients would like to ensure whether your contract has any UCTs, we would strongly recommend obtaining appropriate legal advice relevant to the particular circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Court orders record $26.5M penalty for breach of Australian Consumer Law

Introduction

On 20 September 2019, the Federal Court of Australia ordered Cornerstone Investment Aust Pty Ltd (in liq) (Cornerstone) to pay record penalties totalling $26,500,000 and compensation of approx. $56,000,000. [1]

In an earlier decision, on 19 September 2018, the Federal Court of Australia found Cornerstone had engaged in a system of unconscionable conduct and had displayed ?callous indifference’ to the existing system of consumer protections. [2]

This penalty is more than double the previous record of $12,000,000, levelled at We Buy Houses Pty Ltd in 2018 for false or misleading representations. [3]

These judgments reflect the Australian Competition and Consumer Commission’s (ACCC)’s immense resolve to enforce recent amendments to the Australia Consumer Law (ACL) legislation providing for the substantially increased penalties.

The Case

Cornerstone was a provider of VET-FEE-HELP funded Diploma courses, charging its clients up to $15,000 per course. It marketed and sold these courses using face-face marketing, including door-door sales to consumers in remote communities and low socio-economic areas in New South Wales, Western Australia, Victoria, Queensland and South Australia, including Indigenous communities. [4]

The Penalty Order ? Aggravating Factors

The Court held that Cornerstone’s system of conduct was ?demeaning and predatory’. [5]

Justice Gleeson held at [86]:

?Cornerstone’s contravening systemic conduct is particularly serious in the present case for at least the following reasons.

First, Cornerstone engaged in the contravening conduct for an extended period ? some 6 months. In that time, thousands of consumers were affected.

Secondly, Cornerstone’s conduct caused significant financial loss to consumers and the Commonwealth.

Thirdly, consumers were at a significant disadvantage in terms of bargaining position, and were otherwise vulnerable to being misled or deceived.

Fourthly, Cornerstone’s conduct was unfair to consumers, in circumstances where Cornerstone knew that its consumers may have come from disadvantaged sectors of the community (because that was its stated target demographic).

Fifthly, Cornerstone’s conduct involved a callous indifference to consumer protection, including whether consumers were ?duped? into enrolling in online courses.

Cornerstone’s conduct evidences a widespread failure to ensure that it had adequate processes to identify suitable students, capable of completing the courses in which they were enrolled, in circumstances where students would incur a significant debt. The revenue Cornerstone derived from the VET FEE-HELP Scheme provided a motive for Cornerstone to engage in exploitative practices, or to condone or turn a blind eye to such practices by its recruiters.?

The New Penalty Regime ? The Greater of Three

The decision is an example of the new provisions under the ACL being enforced and applied. These provisions provide for higher maximum penalties for breaches, including unconscionable conduct, making false or misleading representations, and the supply of consumer goods or certain services that do not comply with safety standards or which are banned:

For corporations, the determination of the maximum penalty is the greater of:

? $10,000,000;

? three times the value of the benefit received; or

? 10% of annual turnover in preceding 12 months, if the Court cannot determine the benefit obtained from the offence. [6]

For individuals, maximum penalties have also increased, from $220,000 to $500,000.

Importantly, these amendments follow a trend in introducing penalties proportionate to the benefit derived from the wrongdoing, or the size of the offender.

Conclusion

It is clear that the ACL should not be treated as a ?cost of doing business?. The new penalty provisions may now cost you and your business!

If you wish to ensure your ACL compliance programs are up to date and staff are adequately trained to minimise the risk of a large financial penalty, GPA law can assist you with any question you may have. Contact us on (02) 9262 4471 for a free no obligation consultation.

[1] ? Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1433.

[2] ? Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408, [46120].

[3] ? Australian Competition and Consumer Commission v We Buy Houses Pty Ltd (No 2) [2018] FCA 1748. 

[4] ? As above n 2, 153 (1). 

[5] ? As above n 1, 78.

[6] ? Competition and Consumer Act 2010 (Cth) Sch 2, ss 151, 156, 224.