Companies that breach the competition and consumer laws could face new and higher penalties under legal changes which passed Parliament last week.
The changes consist of two parts; the introduction of penalties and other changes relating to unfair contract terms, and significant increases in maximum penalties for breaches of certain provisions of the Competition and Consumer Act including the Australian Consumer Law.
Penalties for unfair contract terms will come into effect the day after 12 months have passed after the bill receives Royal Assent. The higher CCA penalties will apply the day after Royal Assent is granted.
Maximum penalties increased five-fold
Under the changes increasing penalties for some conduct, maximum penalties for companies that breach those provisions have increased to the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30 per cent of the company’s turnover during the period it engaged in the conduct.
“The increase in penalties should serve as a strong deterrent message to companies that they must comply with their obligations to compete and not mislead or act unconscionably towards consumers,” ACCC Chair Gina Cass-Gottlieb said.
“These maximum penalty changes will allow the Courts to ensure that the penalties imposed for competition and consumer law breaches are not seen as a cost of doing business, but rather as a significant impost and something likely to raise the serious attention of owners or shareholders.”
Introduction of first-ever penalties for unfair contract terms welcomed
The changes also include the introduction of penalties for businesses that include unfair contract terms in their standard form contracts with consumers and small businesses.
“We have long highlighted the adverse consequences of unfair contract terms on consumers and small business, including franchisees, and suggested that they be outlawed and penalties are required to provide a stronger incentive for businesses to comply,” Ms Cass-Gottlieb said.
Previously, the Courts could declare specific terms of a contract unfair and therefore void, but they were not prohibited and the Court could not impose any penalties on businesses that included them in standard form contracts.
“Businesses have 12 months to review and update their standard form contracts before these penalties apply. These changes will improve small business and consumer confidence that they will not be taken advantage of when entering into or renewing standard form contracts in the future,” Ms Cass-Gottlieb said.
“Many small business complaints about big business are about unfair contract terms and it will be an enormous boost to small businesses that there will be a far stronger deterrent against the use of such terms.”
The changes will also expand coverage to more small business contracts. The protections will apply to contracts with small business which employ fewer than 100 persons or have an annual turnover of less than $10 million, and will apply irrespective of the value of the contract. The changes also clarify other aspects of the laws, such as more clearly defining ‘standard form contracts’.
“Standard form contracts provide a cost-effective way for many businesses to contract with significant volumes of customers. However, by definition, these contracts are largely imposed on a ‘take it or leave it’ basis. The unfair contract terms laws are vital to protect consumers and small businesses against terms in these contracts that take advantage of this imbalance in bargaining power. We are pleased that these laws have been strengthened,” Ms Cass-Gottlieb said.
The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 passed both Houses of Parliament on 27 October 2022.
The higher penalties under the Competition and Consumer Act will apply to breaches which take place after it commences.
The new maximum financial penalties for businesses are the greatest of:
- Three times the value of the “reasonably attributable” benefit obtained from the conduct, if the court can determine this; or
- if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.
Under former penalties, the maximum penalty was $10 million; three times the benefit or 10 per cent of relevant turnover.
The maximum penalty for an individual will increase from $500,000 to $2.5 million.
These maximum penalties apply to a range of offences and civil penalty provisions under the Australian Consumer Law including unconscionable conduct, false or misleading representations, harassment and coercion, supplying products that do not comply with safety or information standards or that are covered by a safety ban, and more. They also apply to most civil and criminal offences under competition law, including cartel offences, the news media & digital platforms mandatory bargaining code provisions, the international liner cargo shipping provisions, and the prohibited conduct in the energy market provisions.
The ACCC has long advocated for the introduction of penalties to unfair contract terms, including in our submission to the Government review of the unfair contract terms protections in 2018, and in a submission to the regulation impact assessment process in early 2020 about proposed enhancements to the unfair contract terms provisions.
More recently, one of the key recommendations of the ACCC’s 2020 Perishable Goods Inquiry was to introduce penalties for unfair contract terms, and this has also been a key recommendation throughout the ACCC’s digital platform services inquiry.