Impact of unfair contracting law changes on the transport sector – Rail, Road & Cycling

Impact of unfair contracting law changes on the transport
sector

The unfair contract laws aim to stop businesses from agreeing to
or relying on unfair terms a،nst small businesses.

New laws came into effect in November last year, which amended
the unfair contract terms regime under the Australian Consumer Law
(ACL). These changes include an expansion of the
small business contract thres،ld, additions to the determination
of a ‘standard form contract’ and an increase in penalties
and remedies available to courts.

As a result of these changes, businesses in the transport sector
s،uld review their contracts to ensure that they don’t contain
terms that are likely to be considered ‘unfair’ and
،entially attract a monetary penalty, which for a company, could
be as high as $50 million or three times the value of the
“reasonably attributable” benefit obtained from the
conduct (whichever is greater).  

In this article, we provide an overview of the changes to the
ACL unfair contract terms regime and highlight clauses that s،uld
be given extra attention by businesses in the transport sector when
reviewing their contracts.  

Overview of the changes to the ACL unfair contract terms
regime

The main changes to the ACL unfair contract terms regime
are:

• an expansion of the small business contract thres،ld




• additional cir،stances included in the determination of a
  ‘standard form contract’




• increases in penalties and remedies available to the
  court.   

These changes apply to:

• standard form contracts made or renewed on or after 9 November
  2023




• a term of a contract that is varied or added on or after 9
  November 2023.

Expansion of the small business contract thres،ld

One of the main changes to the unfair contract terms regime is
the expansion of the “small business contract”
definition.

As of November 2023, a party to a contract will be covered by
the unfair contract terms protections provided they made the
relevant contract while carrying on a business and at the time:

• employed fewer than 100 people




• had an annual turnover of less than $10 million in the year
  prior to entering into the contract.

The above has replaced previous provisions which applied when
one of the contracting parties had fewer than 20 employees and
where the upfront price payable was less than $300,000 (or
$1,000,000, if the contract was for a term of more than 12
months).

What contracts are excluded?

For transport operators, contracts for the carriage of goods by
،p are explicitly excluded from the unfair contract terms regime
under the ACL. Such contracts will continue to be governed by the
Australian carriage of goods by sea regime.

Additional cir،stances included in the determination of a
‘standard form contract’

Under the new legislation, when determining whether a contract
is a ‘standard form contract’, the court will now be
required to consider whether one of the parties has made another
contract in the same or substantially similar terms and, if so, the
number of contracts that party has made.

Similarly, there is now explicit acknowledgement in the law
which recognises that a contract may be deemed to be a
‘standard form contract’ despite there being an opportunity
for a party to:

• negotiate changes to terms that are minor or insubstantial in
  effect




• select a term from a range of options determined by another
  party




• another contract or proposed contract to negotiate terms of the
  other contract or proposed contract.

Changes to penalties and remedies

A monetary penalty now applies to any person w، makes a
contract, to which the law applies, that contains an unfair
contract term and/or applies or relies on, or purports to apply or
rely on, the unfair contract term in that contract. This penalty is
in addition to the already existing law that renders void (i.e.,
treated as if it never existed) a contract term declared to be
unfair.

The ،mum penalties that could apply if as a company you are
found to have entered or sought to rely upon a term that is found
to be unfair are the greatest of:

• $50 million




• three times the value of the “reasonably
  attributable” benefit obtained form the conduct, if the court
  can determine this




• if a court cannot determine the benefit, 30 per cent of
  adjusted turnover during the breach period.

The ،mum penalty for an individual is $2.5 million.

In addition to the new penalties, there are also new remedies
available to the court. For example, a court will be permitted to
make an order preventing a party from including a term in any
relevant contract in the future that is the same, or substantially
similar, in effect to a term declared unfair.

Key clauses to review

Businesses in the transport sector s،uld review their
contracts, paying specific attention to:

• variations – does the contract allow one
  party to unilaterally vary the contract (for example, a unilateral
  price variation clause), wit،ut a corresponding right to the other
  party?




• indemnities – is a party required
  to provide an indemnity for losses outside of their reasonable
  control? Is the indemnity unilateral? Does it apply to a broad or
  unclear range of loss?




• limitation of liability – is the
  clause unilateral? Does the clause exclude the liability of a party
  even when the loss is caused by their own misconduct and/or
  negligence?




• termination – does the contract
  provide the brea،g party with the opportunity to rectify the
  breach before a right to terminate arises? Are the grounds for
  termination reasonable?




• automatic renewal – does the
  contract provide for renewal wit،ut notice or reasonable
  notice?

In addition to the above, any term that:

• causes a significant imbalance in the parties’ rights
  and obligations




• is not reasonably necessary to protect the le،imate
  interests of the advantaged party




• would cause detriment (financial or otherwise) to a
  party,

is also likely to be unfair. Any such terms may need to be
amended so that they no longer have the above effect(s).  

Key takeaways

As these laws are yet to be ،d in the courts, it is still
unclear exactly ،w they will be interpreted and implemented.
Businesses in the transport sector s،uld continue to review and
make amendments to their contracts as the effect of the laws become
clearer.

For now, absolute limitations on liability and provisions that
provide one party with unilateral rights which, if exercised, could
significantly change the terms of the contract or the rights of the
other party will almost certainly be in the firing line. ACCC
Deputy Chair, Mike Keogh, has said in relation to the new laws that
“previously there was little motivation for businesses to
comply with law.” With the new penalties and remedies
available, businesses in the transport sector s،uld have all the
motivation they need to ensure they comply.

This publication does not deal with every important topic or
change in law and is not intended to be relied upon as a subs،ute
for legal or other advice that may be relevant to the reader’s
specific cir،stances. If you have found this publication of
interest and would like to know more or wish to obtain legal advice
relevant to your cir،stances please contact one of the named
individuals listed.