Pecuniary Penalties
In Australia, Competition Law and Consumer Protection are found in the same legislation, the Competition and Consumer Act 2010 (Cth) (CCA). The Australian Consumer Law (ACL) is Schedule 2 to the CCA.
The construction of the maximum pecuniary penalty regime for breaches of competition law and consumer law by a corporation is common. The maximum pecuniary penalty is expressed as the greater of: (a) a fixed amount; (b) a multiple of the benefit obtained, if that can be determined; or (c) if the value of the benefit cannot be determined, a fraction of revenue.
Until the amendments, the maximum pecuniary penalty was the greater of:
- $A10 million;
- 3 times the value of the benefit obtained, if that can be determined; or
- if the value of the benefit cannot be determined, 10% of annual turnover in the 12 months prior to the breach.
For an individual, the penalty for each offence was up to $500,000. The changes to the CCA and ACL increased these figures.
- $A50 million;
- 3 times the value of the benefit obtained, if that can be determined; or
- 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).
For an individual, the penalty for each offence was increased to up to $2,500,000.
Not only is the maximum penalty greater, the percentage of revenue limb of the options available to the Court is designed to provide a specific deterrence to ongoing breaches. This might be a particularly effective penalty construct for cartel conduct. The fivefold increase to the maximum penalty for individuals also reflects a desire to deter any anti-competitive conduct.
The effect of the change is most significant in respect of consumer law. Here, the maximum penalty for a corporation has risen from $A1.1 million in 2018 to $A50 million after the amendment.
Unfair Contract Terms
Currently, the ability to void unfair contract terms is limited to standard form contracts (take it, or leave it agreements) and only in respect of consumers and small business. Unfair contract terms will be prohibited starting 9 November 2023. From that date, a person is prohibited from making a contract with an unfair contract term if the unfair contract term was proposed by the same person. A person is also prohibited from applying or relying on (or purporting to apply or rely on) an unfair contract term. Each unfair contract term contained in a contract is considered a separate contravention.
Because the current regime provides the remedy of voiding an unfair contract term, there is no penalty regime. Once the new provisions come into effect, there will be penalties for breaching these provisions. For corporations, the penalty for each offence can be up to the greater of: (a) $A50 million; (b) three times the value of the benefit obtained that is attributable to the offence (if the Court can determine that value); (c) or if the value of the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (that is, over the period the breach occurred, with a minimum of 12 months). For an individual, the penalty for each offence can be up to $A2,500,000.
The definition of small business contract will also change. Currently, a small business contract requires the small business to have fewer than 20 employees and the contract having either: an upfront price payable under the contract of less than $A300,000; or $A1 million if the contract is longer than 12 months. After 9 November 2023, the ‘small business’ threshold is: fewer than 100 employees; or annual turnover of less than $A10 million.
There is also a change to the scope of standard form contract. Currently, in determining whether a contract is a ‘standard form contract’, the Court must consider a number of matters including:
- whether one party was required to reject or accept the terms of the contract in the form it was presented; or
- was given an effective opportunity to negotiate the terms of the contract.
However, once the legislation takes effect, in addition to these matters, the Court must consider whether a party has used the same or similar contracts 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:
- to negotiate changes that are minor or insubstantial in effect;
- to select a term from a range of options; or
- for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.
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;
- 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.
The prohibition of unfair contract terms has a significant impact on two business practices.
The first is where the business requires consumers to agree to a standard contract for the provision of goods or services. Here, the year between enactment and effect is designed to provide businesses time to review all of their standard form contracts to eliminate unfair contract terms. This is particularly important as the new regime will apply to:
- existing contracts that are renewed after 9 November 2023;
- terms of an existing contract that are varied after 9 November 2023; and
- new contracts entered into after 9 November 2023.
The second is in business-to-business transactions such as franchise or distribution agreements. The change to the definitions of both “small business” and “standard form contract” mean that some unbalanced agreements may include prohibited unfair contract terms when they are renewed or amended.
