What’s happened?
On 28 September 2022, the Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh MP, introduced the much anticipated Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the Bill) in the Australian Parliament, which proposes to increase the maximum civil penalties available under the Competition and Consumer Act 2010 (Cth) (CCA) for contravening competition and consumer laws and make unfair contract terms illegal (UCTs).
In a sign that the Federal Government is serious about implementing these changes, the Bill has now progressed through the first and second reading stage. Parliamentary debate of the Bill has been adjourned to a later sitting date.
How did we get here?
Over the past two years, the Federal Government has held consultation processes on draft legislation to prohibit UCTs, and as recently as last month, to implement the increase in maximum civil penalties under the CCA. In April, a bill to make UCTs illegal progressed to the second reading stage before lapsing due to the Federal election.
This new bill combines the two proposals into a single piece of legislation which, if passed, will amend the CCA and the mirrored provisions in the Australian Securities and Investments Commission Act 2001 (Cth).
As part of its Federal election campaign in May 2022, the Australian Labor Party (the ALP) announced plans to increase the maximum penalty for anti-competitive conduct from $10 million to $50 million to help “ease the cost of living” and support businesses who “play fair”.
At the time of the announcement, it was not clear whether the proposals would also extend to consumer law contraventions, where the maximums had been increased as recently as September 2018 to align with the maximums for competition law contraventions. However, the draft exposure legislation released in August 2022 confirmed it would extend to both. If the Bill is passed, consumer law penalties will have increased from a maximum penalty of $1.1 million pre-September 2018, to a current base maximum of $10 million, to $50 million.
Both the Explanatory Memorandum and Second Reading speech of the Bill state that maintaining the status quo risks competition and consumer law contraventions being viewed as an “acceptable cost of doing business” (particularly by large businesses) given the base maximum penalty of $10 million has not changed for nearly 30 years. Dr Leigh MP also stressed that the current UCT regime, where the Court may declare a UCT as void, “has not provided sufficient deterrence against the use of unfair terms, which remain prevalent in standard form contracts”.
A summary of the proposed changes, including any amendments to the proposals made since the Federal Government’s initial consultation processes, is set out below.
UCTs will be subject to civil penalties for the first time
What are the proposed changes to the UCT regime?
Current law |
New proposed law |
|---|---|
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UCTs are void |
A person is prohibited from making a contract with a UCT (if the UCT was proposed by that person) as well as applying or relying on (or purporting to apply or rely on) a UCT. Each UCT contained in a contract is considered a separate contravention. |
|
No equivalent |
A pecuniary penalty may be imposed if a person makes a contract with a UCT they proposed or if they apply, rely, or purport to apply or rely, on a UCT amounting to:
|
|
The Court may make orders:
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In addition to the current laws, the Court may make orders it considers appropriate to redress (in whole or in part) loss or damage that has been caused or to prevent or reduce loss or damage that is likely be caused, by the UCT, including to existing contracts that contain the same or similar terms. |
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The Court may injunct a party from applying or relying on (or purporting to apply or rely on) a term of a contract that has been declared unfair. |
In addition to current injunction powers, the Court may injunct a person from:
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‘Small business’ threshold is:
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‘Small business’ threshold is:
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In determining whether a contract is a ‘standard form contract’, the Court must take into account a number of matters including:
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In addition to current matters, the Court must consider whether a party has used the same or a similar contract before, and the number of times this has been done. A contract may be determined to be a standard form contract despite whether a party had an opportunity:
|
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The law refers to non-party consumers. |
The law refers to both non-party consumers and non-party small businesses. |
When will the proposed changes to the UCT regime apply?
The proposed amendments to the UCT regime are set to only apply to:
- new contracts entered into at or after the commencement date;
- existing contracts that are renewed at or after the commencement date; and
- terms of an existing contract that are varied at or after the commencement date,
(the ‘commencement date’ for these amendments being 12 months and one day after the Bill receives Royal Assent).
Have any of the UCT proposals changed following the government’s consultation process?
The Bill mostly aligns with the proposed changes in the initial exposure draft legislation released for consultation in August 2021, but differs in a few key ways, including:
- the government is no longer seeking to introduce a rebuttable presumption that a contract term will be presumed unfair if the same or a substantially similar term has been deemed unfair in another proceeding in similar circumstances; and
- the Bill now provides that a review relating to the operation of the new laws must take place during the first two years following the laws’ commencement and a report must be completed within six months after the end of those two years.
The ACCC has previously identified certain practices that it considers problematic, but are not caught by the current UCT regime, and has therefore recommended introducing an ‘unfair trading practices’ prohibition to address this issue. However, the current proposals do not contemplate such a prohibition, so time will tell if the Federal Government has the appetite for this type of reform.
Reminder: what makes a contract term ‘unfair’?
A term of a standard form consumer or small business contract is unfair 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 (financial or otherwise) to a party if it were to be applied or relied on.
For example, terms that permit one party, but not another, to:
- avoid or limit performance of the contract;
- terminate the contract;
- vary the terms of the contract;
- renew or not renew the contract; or
- unilaterally vary the characteristics of the goods or services supplied,
may be unfair. However, terms that define the main subject matter of the contract or set the upfront price payable are not affected by the UCT regime.
Maximum penalties for competition and consumer laws set to increase substantially
What are the new proposed maximum penalties?
G+T’s recent article 'Punishing new penalties proposed for competition and consumer law contraventions in Australia' provides an in-depth overview of the new maximum penalties for contravening the competition and consumer laws and their implications under the proposed changes.
The new maximum civil penalties will come into force one day after the Bill receives Royal Assent and will only apply to conduct that occurs on or after that date.
We summarise the key changes in the following table:
Current penalties |
Proposed new penalties |
|
|---|---|---|
Companies, the greater of: |
$10 million |
$50 million |
|
3x the value of the benefit obtained, if that can be determined |
3x the value of the benefit obtained, if that can be determined |
|
|
if the value of the benefit cannot be determined, 10% of annual turnover in the 12 months prior to the breach |
if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (i.e. over the period the breach occurred, with a minimum of 12 months) |
|
Individuals |
$500,000 |
$2,500,000 |
Have any of the proposals to increase the maximum penalties under the CCA changed following the government’s consultation process?
The Bill largely aligns with the exposure draft legislation released in August 2022 and no substantial changes have been made following the consultation process.
The ALP’s election commitment to these reforms also mentioned introducing a ‘Super Complaint’ function within the ACCC to allow trusted consumer groups (e.g. CHOICE) to enlist the ACCC to investigate serious consumer protection issues. This new function is not included in the current proposals.
What’s next?
Debate of the Bill in parliament has been adjourned to a later date, so watch this space closely for further updates. As explained above, if the Bill is passed the changes to the maximum competition and consumer law civil penalties will come into force almost immediately following Royal Assent, whereas the changes to the UCT regime will commence around 12 months after the Bill is assented to.
In the meantime, have a read through G+T’s guide on fair dealing and consumer protection to ensure your business’ competition and consumer law compliance policies are up to date and staff are adequately trained to minimise the risk of incurring large financial penalties.
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