The primary effect of the Amendments is that more contracts will be considered small business contracts and the primary consequence of the Amendments is the introduction of significant penalties that businesses could face if they make a contract with, or seek to rely upon, an UCT.
If your business falls within the definition of a small business, or your company is contracting with businesses that would fall within the definition, then it is important to engage a qualified Solicitor to review any standard form contracts that your business utilises before 9 November 2023, particularly in light of the new penalty regime for breaches of the UCT regime.
The Unfair Contract Term (UCT) regime under the Australian Consumer Law (ACL) was introduced in November 2016 and has provided consumers and small businesses protection against a party enforcing unfair terms in standard form contracts against them.
On 9 November 2023 the UCT regime will be amended by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Amendments).
Benefits of Using a Standard Form Contract in your Business
There are a number of benefits to using a standard form contract in your business, including:
- reduction of business risks and potential disputes,
- costs and time saving, by eliminating the need for custom contracts,
- your employees and clients are familiar with your contracts and therefore more likely to comply with and enforce relevant provisions, and
- provides for consistency in your dealings with clients and third parties.
The UCT Regime
For a business to rely upon the UCT regime, the business must have entered into a contract which is both a “standard form” and “small business contract”.
What is a small business contract?
The current definition of a small business contract under the ACL, which applies to contracts entered into up to 9 November 2023 (being the date on which the Amendments will take effect), is a contract that satisfies all of the following criteria:
- the contract is for the supply of goods or services, or a sale or grant of an interest in land;
- at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
- the upfront price payable under the contract does not exceed $300,000; or
- the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.