AUSTRALIA Law and Practice Contributed by: Michael Lawson, Nicole Brown, Lizzie White and Tamaryn Leach, MinterEllison
and the ASIC Act 2001 (Cth) now mean there are significant consequences for using or rely - ing on unfair terms in a standard-form consum - er or small business contract. Businesses now face substantial penalties for contravening the updated laws, and with each unfair term forming a separate contravention, there could be multi - ple contraventions in a single contract. Penal - ties up to AUD50 million or more, depending on the benefit obtained from the conduct, could be imposed for each contravention. ASIC updated its guidance material on UCTs in INFO 210 (for consumers) and INFO 211 (for small businesses) following the commencement of significant changes to the UCT regime. In summary, a standard-form contract is a con - tract that has been prepared by one party to the contract (the business offering the product or service) without negotiation between the parties. It could apply even when the other party has the opportunity only to negotiate minor changes or where changes are permitted but only from a range of pre-prepared options. A term of a standard-form contract could be “unfair” if it: • would cause a significant imbalance in the parties’ rights and obligations arising under the contract; • is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term; or • would cause detriment (financial or otherwise) to a small business if it were to be applied or relied on. There is an exception that applies to the funds management industry. The UCT regime does not apply to a contract that is the constitution of a managed investment scheme. However, if the contractual arrangements fall outside the
scheme’s constitution, the product issuer might still be caught. One feature of the reforms was that they expand - ed the small business class that can rely on UCT protections. A business will be a small business if it either: • employs fewer than 100 people; or • has a turnover of less than AUD10 million for the previous income year. If a contract relates to financial products and services, there is a monetary cap on the upfront price of AUD5 million. For other types of con - tracts, there is no cap. The definition of “small business” has led to some unintended con - sequences, particularly affecting a few large, sophisticated financial services entities that the reforms have impacted. The authors believe that both ASIC and the industry are concentrating on these issues, especially in situations where transactions occur between two institutional parties. Enforcing UCT Regime Among ASIC’s 2023 Priorities Following the commencement of the UCT reforms, the Australian Financial Markets Asso - ciation (AFMA) made an urgent application to ASIC for no-action relief in advance of the changes to the UCT regime, citing concerns on behalf of industry that the amended regime would apply to certain sophisticated participants in financial markets who are not consumers or small businesses intended to be covered by the regime. Following consultation with the Treasury, AFMA and industry participants, ASIC granted a limited class no-action position for institutional markets on 6 February 2024.
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