By Mark Armstrong, Solicitor and Clint Fillipou, Principal 

For some time there has been unrest with the limitations of the regulatory scope to deal with breaches of the Competition and Consumer Act 2021 (Cth) (the “Act”) and the Australian Consumer Law (ACL), which forms Schedule 2 of the Act.  Cynically, there was a perception that for some entities, fines for failure of compliance were affordable, and just a cost of doing business. It is unlikely that will continue to be the case, after federal parliament recently passed the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the “Bill”), which significantly increases the penalties for certain breaches of the Act including the ACL.  This is a major update that businesses must be aware of, as the updates could have an enormous impact on both companies and individuals for failing to comply with relevant ACL provisions such as those relating to false and misleading representations, and component pricing.  The Bill also introduces penalties and other amendments in relation to unfair contract terms, and substantially increases the maximum penalties for certain ACL breaches.

Background

Protection of consumers and businesses (especially small businesses) has always been a top priority for the Australian Competition and Consumer Commission (“ACCC”) and these changes are designed to do this by way of increased financial penalties and enforcement powers.  The maximum financial penalties for applicable breaches of the ACL were last increased in late 2018 and the new Bill’s Explanatory Memorandum states the reasoning for these incoming changes as ‘to ensure that the price of misconduct is high enough to deter anti-competitive behaviour and unfair activity, and to ensure consumers retain a robust level of protection’.

The ACCC is consistently aggressive in targeting entities that breach the Act and the ACL and these changes will: (i) allow them to utilise their enforcement powers to deliver heavier financial blows, which is intended to discourage entities from engaging in behaviour that is contrary to law; and (ii) in turn, incentivise businesses to uphold consumer rights and protect consumers.  Separately, until now, failure to comply with the unfair contracts terms was met with no penalty, essentially only an inability to enforce those terms. The ACCC have also been relentless this year in pursuing entities that have been operating on contracts with terms that are unfair – five entities in 2022 have either provided the ACCC with court-enforceable undertaking or have otherwise amended contracts with unfair terms, in addition to paying tens of thousands of dollars in pecuniary penalties after receiving infringement notices for breaches of other sections of the ACL.  The updates introduced by the Bill will ensure the ACCC have plenty more firepower in their enforcement arsenal to continue their crusade on those who disregard the ACL.

The end result is that the ACCC and the Courts have been given the power to batter entities in breach of ACL harder than ever before.  The ACCC have consistently advocated for higher penalties for ACL breaches for a number of years and have publicly welcomed these new harsher rules, and adding in penalties for failing to comply with the unfair contracts terms is well overdue.  We will keep an eye out to see how these powers are brought into play once the Bill comes into force.  Further details on the changes are below.

What are the updates?

The updates coming into effect are split into two parts:

1. Amendments to the Act and the ACL to increase the maximum penalty applicable to certain breaches (Schedule 1 Updates); and
2. Amendments to the Act, the ACL and the Australian Securities and Investments Commission Act 2001 (Cth) to introduce penalties for unfair contract terms, extend the coverage of contracts covered and provide greater injunction powers to Courts (Schedule 2 Updates).

Schedule 1 Updates

The Schedule 1 Updates apply to all ACL provisions that currently attract a pecuniary penalty, which includes those dealing with:

• false/misleading representations and unconscionable conduct;
• bait advertising;
• the requirement to specify a single price in certain circumstances;
• unsolicited credit or debit cards, pyramid schemes and referral selling;
• supplying goods and product related services that do not comply with safety or information standards or are covered by a ban; and
• compliance with recall notices.

Essentially, the maximum penalty for a breach of the applicable sections of the ACL has been increased dramatically to the greater of:

• (a) $50 million – an increase from $10 million;
• (b) if the court can determine the total value of the benefits that: (i) have been obtained by one or more persons; and (ii) are reasonably attributable to the commission of the offence; 3 times that total value – no change from previous; or
• (c) if the court cannot determine the total value of those benefits – 30% of the corporation’s adjusted turnover during the breach turnover period for the offence, act or omissions – an increase from 10% and a departure from the previous period being ‘during the 12-month period ending at the end of the month in which the corporation committed, or began committing, the offence’.

For an individual, the maximum amount has been raised from $500,000 to $2.5 million.

The end result is that the maximum penalty has been increased five-fold with the specific intention of deterring anti-competitive behaviour and ensuring that consumer guarantees protect to a high degree.

Adjusted Turnover and Breach Turnover Period

The Bill inserts new definitions into the Act for adjusted turnover and breach turnover period which directly impacts the third limb of the new maximum penalty.  Essentially, the use of ‘adjusted turnover’ means that:

• (i) the third limb is now assessed based on the sum of all values of all supplies that the body corporate and its related body corporates have made or are likely to make during the period – subject to some exclusions such as supplies made from any of those bodies corporate to any other of those bodies corporate or supplies that are input taxed or not for consideration; and
• (ii) the period in which the conduct occurred, which was previously set at a maximum of 12 months is now a minimum of 12 months. This means that for a single breach, the breach turnover period will be 12 months, but for a series of breaches that continue for an extended period of time, the breach turnover period will be for the entire period in which the entity was in breach, even if this period extends for longer than 12 months.

This will have an enormous impact on the penalties issued and will allow the ACCC to make an even bigger example out of entities who flout the ACL.

Schedule 2 Updates and Unfair contract terms

As we have outlined in past publications such as this one, the ACL protects consumers (and small businesses) from being forced to comply with unfair terms embedded within certain contracts.  A term in a contract may be deemed unfair if it:

• (i) causes a significant imbalance in the parties’ rights and obligations;
• (ii) is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term; and
• (iii) it would cause detriment (financial or otherwise) to a party if it the term were applied or relied on.

Examples of unfair contract terms include a term that permits only one party to terminate, penalises one party for breach but not the other, permits only one party to determine if a breach has occurred or limits one party’s right to sue another party.

If a term in a standard form consumer contract, or a ‘small business contract’ is deemed by a Court to be unfair, previously, the term would be rendered automatically void.  The most common result would be for the contract to be amended and the entity seeking to enforce the unfair term would provide a court enforceable undertaking to remove it.  What constitutes a small business contract has now been expanded to include contracts entered into by businesses with less than 100 employees or turnover less than $10,000,000 for the last income year, regardless of the contract value.  The changes also allow a contract to be determined to be a standard form contract despite the existence of one or more of the following:

• (i) an opportunity for a party to negotiate changes, to terms of the contract, that are minor or insubstantial in effect;
• (ii) an opportunity for a party to select a term from a range of options determined by another party;
• (iii) an opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract. term to be declared void, even where the parties had opportunity to negotiate the terms, select from a range of options

The Bill now permits a Court the option to impose a pecuniary penalty if an entity proposes, applies, relies or purports to apply or rely on an unfair contract term.  The changes also permit the court to:

• (i) declare a whole contract or collateral arrangement void to prevent loss or damage that is likely to be caused by the unfair term; and
• (ii) to make orders on application of the ACCC to either: (a) prevent an identical or similar term from being included in any future consumer/small business contract; or (b) prevent or reduce loss or damage likely to be caused by a term that has the same effect as a term that has been declared unfair.

Courts are also given additional injunction powers including to prevent an entity from entering future contracts or applying or relying on an existing contract if the contract contains a term that has the same effect as a term that has been declared unfair.  In short, the Courts have much broader powers in relation to unfair contract terms.

When do the changes come into effect?

Schedule 1 changes – in relation to higher penalties for ACL breaches – come into effect the day after Royal Assent is granted.

Schedule 2 changes – in relation to unfair contract terms – come into effect 12 months from the day after Royal Assent is granted, so companies have until this time to review their standard form contracts to ensure that they do not contain any unfair terms.

We strongly recommend conducting a review of your standard form consumer and business contracts, to ensure they do not contain unfair provisions.

Contact us

If you would like further information on the above and how it impacts on you or your business, please contact one of our experts below. We can provide tailored legal and practical advice to assist you with compliance with the ACL and clearing advertising material.