The idea of an ‘unfair’ contract can be seen as an affront to those who believe that any contract freely entered into cannot by its nature be ‘unfair’. But there is a Bill before Parliament at the moment, set to be passed, that gives major teeth to Australia’s existing unfair contract laws.
The current laws and the pending amendments are probably unique across the globe. And the laws should not be viewed as diminishing contract integrity. Rather, they enhance it.
The Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 contains one section that beefs up the existing unfair contract laws. (Why it’s in a tax Bill is a mystery of parliamentary procedure!)
Simply put, when this Bill becomes law, it will be illegal for big businesses to have unfair contract terms in their standard form contracts with consumers and small business people. (Note: the law only applies to ‘standard form’ contracts.)
Further, fines will apply to anyone who tries to push an unfair contract on to consumers or small business people. The fines are up to $500,000 for individuals and $10,000,000 for corporations. Enforcement provisions are also being strengthened. A court will only have to form a view that harm can be done (by an unfair term). At present, that harm has to be demonstrated.
The implications of this are massive. Businesses that want to impose on consumers and/or small businesses unfair contracts terms will be forced to dump those contracts. (Think phone, internet, car, and other equipment leasing, land sales, and on and on.) This is a huge economic reform that will make for a fairer and stronger Australian economy. More people will be able to do business and buy things with real protections against unfair contracts.
The journey to this point started in 2009.
Unfair contract laws for consumers were introduced in 2010. Before this, in 2009, we at Self-Employed Australia began a campaign exposing small business unfair contract cases. We campaigned to have consumer unfair contract laws extended to small business people.
In 2016 we had partial success. After seven years of campaigning, small business unfair contract laws started. But these were a compromise – limiting the protections to contracts valued at under $300,000. Moreover, the enforcement mechanisms were weak.
The Australian Consumer and Affairs Commission, headed by Rod Sims, was in charge of ‘enforcing’ the law. The ACCC (and Rod) became openly frustrated by big business’ ignoring the laws and pushed hard for a ‘beefing up’ of the laws. In 2018 a review of the laws took place and in 2019 the Morrison government committed to ‘beefing up’ the laws. In 2020 all state governments agreed to the ‘beefing up’. Finally, ASIC became involved in the enforcement of financial contracts and in 2021 unfair contract laws were extended to insurance products.
The Unfair Contract laws embed or codify the ‘structural’ principles of commercial contract in statute. They ensure that standard form contracts have a measure of power balance such that they engender contract trust – that is, the contracts have integrity.
There are some thirteen practical triggers that determine if a contract is unfair. One example is that one party cannot unilaterally change the terms of the contract unless the other party has the same right. This replicates a simple but critical element of contract integrity – namely, that a contract cannot be changed unless both parties agree. Without this principle applying in practice, a ‘contract’ is not really a ‘contract’. It’s a con.
What the ACCC has discovered in trying to enforce unfair contract clauses is that many large businesses have routinely created the ‘right’ to change standard form contract terms without the approval of the other party/ies. When you have this sort of situation the very contractual basis of a market economy is stripped naked to reveal an economy where only the powerful rule! Think China!
When we look at the chaotic shambles of our current political environment and the authoritarian overreach of the last two years, the process of creating and beefing up the unfair contract laws is a pleasing beacon of the very best of the Australian parliamentary process and the public service:
‘The Abbot government committed to the laws for small business. The ALP, Greens and Senate independents ensured that the laws had reasonable meaning in 2016. Rod Sims and the ACCC were champions in highlighting the weaknesses in enforcement and pushing for “beefing up”.
The Morrison government has worked to ensure that the “beefed up” laws are now before parliament. All state governments have signed off on the laws. The ALP, Greens and independents all seem clearly supportive of the new laws.’
We do, however, have one major concern. Australian governments, state and federal, routinely break the unfair contract laws. The laws apply to government-owned businesses for example Australia Post.
Government agencies and departments reckon they are exempt and most often they are. Think defence force procurement, child care subsidies, and more. We need all Australian governments to amend laws to hold government agencies accountable to the same contract standards they expect of the rest of the community.
There’s more work to be done.
Ken Phillips is Executive Director of Self Employed Australia