Increased penalties for breaches of the Competition and Consumer Act (CCA)
The Bill increases the maximum penalty for breachs of certain offence and civil penalty provisions of the CCA. Under the CCA, a person or body corporate can receive a fine and or pecuniary penalty for breaching offence and civil penalty provisions pertaining to:- Restrictive trade practice (Part IV of the CCA) (Restrictive Trade Practices)
- The news media and digital platforms mandatory bargaining code (Part IVBA of the CCA) (News and Digital Platforms)
- International liner cargo shipping (Part X of the CCA) (Cargo Shipping)
- The electricity industry (Part XICA of the CCA) (Electricity Industry)
- The telecommunications industry (Part XIB of the CCA) (Telecommunications)
- The Australian Consumer Law (ACL)
| Current law | Proposed new law |
|---|---|
| Pecuniary penalties | |
| Breach of civil penalty provisions relating to Restrictive Trade Practices, News and Digital Platforms, Cargo Shipping, Electricity Industry and or the ACL | |
|
For a body corporate the greater of - $10 million; - if the court can determine the value of the benefit obtained – three times the value of the benefit; or - if the court cannot determine the value of the benefit – 10% of the annual turnover of the body corporate. For an individual person $500,000 |
For a body corporate the greater of: - $50 million; - if the court can determine the value of the benefit obtained – three times the value of the benefit; or - if the court cannot determine the value of the benefit – 30% of the adjusted turnover during the breach turnover period for the offence, act or omission. For an individual person $2.5 million |
| Contravention of the competition rule relating to Telecommunications | |
|
For a body corporate: - if the contravention continued for more than 21 days—the sum of $31 million and $3 million for each day in excess of 21 that the contravention continued; or - otherwise—the sum of $10 million and $1 million for each day that the contravention continued. For an individual person: maximum $500,000 for each contravention |
For a body corporate: - if the contravention continued for 21 days or fewer— the sum of $50 million and $1 million for each day that the contravention continued; - if the contravention continued for more than 21 days—the sum of $71 million and $3 million for each day in excess of 21 that the contravention continued; - if the court can determine the value of the benefit—three times the value of that benefit; or - if the court cannot determine the value of the benefit obtained—30% of the body corporate’s adjusted turnover during the breach turnover period for the contravention. For an individual person: maximum $2.5 million for each contravention |
| Fines | |
| Making a contract etc. containing a cartel provision (s 45AF) or giving effect to a cartel (45AG) and breaches of the ACL | |
|
For a body corporate the greater of: - $10 million; - if the court can determine the value of the benefit obtained – three times the value of the benefit; or - if the court cannot determine the value of the benefit – 10% of the annual turnover of the body corporate. |
For the body corporate the greater of: - $50 million; - if the court can determine the value of the benefit obtained – three times the value of the benefit; or - if the court cannot determine the value of the benefit – 30% of the adjusted turnover during the breach turnover period for the offence, act or omission. |
| An offence under the ACL including unconscionable conduct, making false or misleading representations, and supplying consumer goods or certain services that do not comply with safety standards or which are banned | |
| For an individual person $500,000 | For an individual person $2.5 million |
The Bill introduces the new terms ‘adjusted turnover’ and ‘breach turnover period’ to pecuniary penalties for breaches of Parts IV, IVBA, X, XICA and the ACL.
- The adjusted turnover means “the sum of the value of all the supplies that the body corporate (and any related body corporate) has made or is likely to have made during the breach turnover period, with some exceptions”
- The breach turnover period means, generally, “the duration of the breach, but 12 months is the minimum period over which the penalty is calculated”
The introduction of the terms ‘adjusted turnover’ and ‘breach turnover period’ are significant, as they have the potential to substantially increase the value of penalties available, being 30% of the adjusted turnover for a minimum period of one year. It follows that this exposes companies with a large annual turnover to substantial penalties, far in excess of any penalty issued under Australian competition and consumer law in the past.
It is said that the introduction of the heightened penalties will ensure that “penalties for anti-competitive behaviour… are more comparable with international jurisdictions” thereby ensuring that “the price of misconduct is high enough to deter unfair activity and improve competition in Australia.”
Changes to the UCT regime
The existing UCT regime
Consumers and small businesses are protected from unfair contract terms in standard form contracts by operation of s 23 of the ACL. The current operation of the ACL renders the UCT void, meaning the remainder of the contract continues to bind the parties to it, as though the UCT did not exist. The ACL has often been criticised for not having sufficient ‘teeth’ to address the existence of UCTs, particularly as it is not able to enforce penalties or facilitate sufficient remedies to address the harm caused by UCTs. The introduction of the Bill into law will give the ACL substantial new ‘teeth’.
Proposed changes to the UCT regime
| Current law | Proposed new law |
|---|---|
| Power of the court in relation to UCTs | |
| UCT rendered void and unenforceable, contract otherwise remains enforceable |
UCT rendered void and unenforceable Courts given additional powers to make orders to void, vary or refuse to enforce part or all of a contract containing a UCT Introduction of civil penalty provisions for breaches in accordance with increased pecuniary penalties outlined above Courts given additional power to make orders that apply to any existing consumer or small business standard form contract (whether or not that contract is put before the court) that contains an unfair contract term that is the same or substantially similar to a term the court has declared to be an unfair contract term Court given additional power to issue injunctions against a respondent with respect to future consumer or small business standard form contracts entered into by a respondent, containing a term that is the same or is substantially the same as a term the court has declared to be an unfair contract term |
| Class of contracts covered | |
|
Small business contracts – contract for supply of goods or services, or a sale or grant of an interest in land where one party is a business with fewer than 20 employees Threshold - contract has an upfront price of less than $300,000 (or $1 million upfront for a contract lasting more than 12 months) |
Small business contracts – contract for supply of goods or services, or a sale or grant of an interest in land where one party is a business with fewer than 100 employees or with less than $10 million in annual turnover in the previous income year No threshold |
Further pertinent changes will include:
- a contract may still be a standard form contract despite:
- a party being given the opportunity to negotiate changes that are minor or insubstantial in effect
- the ability for a party to select a term from a range of options determined by another party
- a party to another contract being able to negotiate terms of the other contract
- the exclusion of certain categories of contracts from the UCT regime, including:
- the operating rules of licensed financial markets
- the operating rules of licensed clearing and settlement facilities
- real time gross settlement systems approved as payment and settlement systems by the RBA
- exempting certain life insurance contracts from the scope of the unfair contract terms provisions.
Important considerations for businesses
When will the Bill become law?
Schedule one of the Bill, being the introduction of increased penalties for breaching certain civil and offence provisions in the CCA and ACL, will apply to all breaches committed from the day after the Bill receives royal assent. Given the Bill is in similar terms to that introduced by the Coalition before the May 2022 election, it is highly likely the Bill will receive bipartisan support, and therefore imminently become law.
A 12-month grace period will apply to schedule 2, being changes to the UCT regime. Despite the 12-month grace period, the Bill will introduce substantial potential pecuniary penalties for including or relying on a UCT. As such, it is critical for all businesses employing standard form contracts to begin reviewing their terms.
Is your business using standard form contracts?
A standard form contract is typically offered on a ‘take it or leave it basis’. However, this does not mean that contracts with some element of negotiation are automatically exempt, and businesses should be keenly aware that their contracts may still be defined as standard form under s 27 of the ACL. Section 27 provides a presumption that a contract is a standard form contract where one party to a proceeding alleges it to be. The onus therefore falls on the other party to proceedings to prove the contract is not a standard form contract. Factors a court may consider include:
- respective bargaining power of the parties, particularly whether one party has all or most of the bargaining power
- whether the contract was prepared by one party prior to the transaction occurring
- whether the contract was offered on a ‘take it or leave it’ basis
- whether the other party was given the effective opportunity to negotiate terms
- whether the specific characteristics of the other party have been taken into account
As outlined above, under the new Bill, a contract may still be a standard form contract despite:
- a party being given the opportunity to negotiate changes that are minor or insubstantial in effect
- the ability for a party to select a term from a range of options determined by another party
- a party to another contract being able to negotiate terms of the other contract
Do you service consumers or small businesses?
You should be aware that the UCT regime applies only to consumer contracts and small business contracts for the supply of goods or services or sale or grant of an interest in land. As outlined above, the definition of a ‘small business’ and therefore a small business contract is expanding. This may bring some of your contracts into the scope of the UCT regime, where it does not currently apply. As you may enter into standard form contracts with consumers or small businesses in the future, you should consider reviewing your standard form contracts for UCTs, even if the regime does not currently apply.
Might your contracts contain UCTs?
The meaning of ‘unfair’ is provided for in s 24 of the ACL. A term in a consumer or small business contract will be unfair, in accordance with the ACL, if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
The transparency of the term and the contract as a whole will be taken into account by the court when determining the above. Transparency takes into account whether the term is in plain language, legible, presented clearly and readily available to any party affected by the term.
The ACL also provides for some examples of unfair terms as follows:
- a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract
- a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract
- a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract
- a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract
- a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract
- a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract
- a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract
- a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning
- a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents
- a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent
- a term that limits, or has the effect of limiting, one party’s right to sue another party
- a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract
- a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract
In August 2022, the Federal Court found Fujifilm Business Innovation Australia’s and Fujifilm Leasing Australia’s (Fujifilm) standard form contracts contained 38 UCTs. The case is a timely reminder that the inclusion of the following terms may constitute UCTs:
- Automatic renewal terms – automatic contract renewal for a further period unless the customer cancelled the contract a set number of days before the end of the contract term
- Disproportionate termination terms – provided Fujifilm with a wide range of circumstances under which to terminate the where the same range was not made available to the customer
- Liability & indemnity limitation terms – limiting Fujifilm’s liability and or requiring the customer to indemnify Fujifilm
- Termination payment terms – requiring customers to pay exorbitant exit fees for contract termination, which could be provided for unilaterally by Fujifilm
- Unfair payment terms – requiring customers to pay for software under the contract regardless of whether Fujifilm had delivered the software, and requiring payment for goods prior to delivery
- Unilateral variation terms – allowing Fujifilm to unilaterally vary terms under the contract, including charges and terms contained in documents other than the contract itself
The court ordered Fujifilm to refrain from enforcing or relying upon the 38 terms in standard form contracts with thousands of customers. However, under the new UCT regime in the Bill, such a breach would likely attract substantial pecuniary penalties. As such the Fujifilm case should act as a strong reminder of the importance of ensuring standard form contracts do not contain any terms which might be construed as being unfair. It is critical that businesses seek legal advice to review contracts and prepare for the implementation of the Bill over the next 12 months.
Further Information
For more information about competition and consumer law, or for help reviewing your standard form contracts, contact Trevor Withane: