Where the Legal Profession Acts regulate it, a valid agreement must be fair and reasonable. The agreement is valid until varied or set aside by judicial process determining that it is not fair and reasonable. The approach has both procedural fairness and substantive fairness elements.

In New South Wales or Victoria, since 1 July 2015, it is the costs, not the agreement about them, that must be fair and reasonable. The scheme of Legal Profession Uniform Law (NSW) or Schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic) is for either contravention of a statutory provision of the Acts or the determination of a costs assessor to avoid a costs agreement not judicial process. Additionally, the costs must be no more than fair and reasonable in all the circumstances and in particular they must be both proportionately and reasonably incurred and proportionate and reasonable in amount.

Where the ACL applies to the agreement, the approach is different again. The ACL requires a contract, including an agreement as to costs, which is a standard form contract, a “take it or leave it” contract. The Unfair Contract Terms (UCT) provisions of the ACL will then allow a court upon application to declare invalid unfair terms of such a contract.

Procedural unfairness is concerned with the fairness of the way in which the contract was made. In contrast, the test for unfairness of UCT is largely one of substantive unfairness. It is therefore concerned with the effect of terms of the contract; whether they create a significant imbalance between the parties to the contract, whether they are reasonably necessary to protect the legitimate interests of the supplier and whether they may cause detriment to the consumer.

The Difficulties with the ACL

The Council of Australian Governments agreed in July 2009 to create a single national consumer law. The Commonwealth repealed significant sections of the existing Trade Practices Act 1974 (Cth) and enacted the ACL in a reconstituted Trade Practices Act 1974 (Cth). This reconstituted Trade Practices Act 1974 (Cth) became what is now the Competition and Consumer Act 2010 (Cth) and the ACL is Sch 2 to that Act. The ACL was adopted by the Commonwealth and by each participating State or Territory. The ACL was adopted by each participating State or Territory by way of application laws or “mirror laws” affecting existing Fair-Trading Acts. In this way the ACL replaced, in large part, the consumer protection provisions of the Trade Practices Act 1974 (Cth) and the various state Fair-Trading Acts.

This brief account of the creation, structure and content of the ACL as originally enacted shows the difficulties Australian legislators faced, and continue to face, in framing consumer protection legislation which does not further complicate the existing complex interactions between statute, the common law, the law of contract and the law of tort.

Briefly stated these difficulties include, in the context of legal practice, the place of professional standards when the ACL applies to the services lawyers provide and the agreements as to costs by which they provide them.

Enhancements to the UCT regime

In November 2016, recognising that small businesses in their contracts often face the same challenges as consumers, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) extended the UCT protections to certain standard form small business contracts.

In November 2018, the Federal Government released a discussion paper seeking information to review the operation of UCT protections for small business.

The information gathered suggested that:

• while the existing UCT regime had improved protections for small business in certain industry sectors, it would not deter businesses from using UCT in their standard form contracts;
• some aspects of the current regime appeared to have created ambiguity, uncertainty, and practical difficulties for businesses in complying with the law;
• regulators needed to promote awareness of UCT and to improve the guidance provided to business to support compliance.

As a result, the Government announced its intention to strengthen the UCT protections.

The Treasury Laws Amendment (Measures for a later Sitting) Bill 2021 was released as an exposure draft.  The bill sought to amend the ACL and the related Australian Securities and Investments Commission Act 2001 (Cth) to strengthen and clarify the existing unfair contract term provisions in both acts, in order to reduce the prevalence of unfair contract terms in consumer and small business standard form contracts.  However, the exposure draft was abandoned, and the reforms worked into the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022.  The Bill lapsed on dissolution.

Small business and medium business are often described as the engine room of the national economy. They also provide the legal profession with many of its clients.

When the bill was first mooted it was possible that, with Opposition support, such important reforms as the Bill sought to make could reach Royal Assent before the impending election. That was necessary not only for commencement of the proposed reforms but for commencement of the six months that must expire before the reforms could commence.

The proposed enhanced UCT in summary

The Bill sought to strengthen the remedies and enforcement of the UCT regime by:

• providing courts with the power to impose a pecuniary penalty for a contravention of new prohibitions on proposing, applying or relying on an UCT provision in a standard form contract, in addition to the current ability to declare it ‘unfair’;
• creating a new rebuttable presumption that terms that had been found to be unfair which were subsequently included in relevant contracts in similar circumstances, were  unfair;
• increasing the contracts covered by UCT provisions by increasing the small business definition thresholds and removing the former contract value threshold;
• clarifying and strengthening the UCT provisions generally by:
  • ensuring that repeat usage of a contract was  taken into account in determining whether a contract is a standard form contract; and
  • setting out matters not to be considered in determining whether a party had an effective opportunity to negotiate a contract.

The proposed new prohibitions

If a court finds that a person has contravened the new prohibitions, it can order payment of a pecuniary penalty.

There are two separate prohibitions.  The first prohibition means that a person will be in breach of the law if they propose an unfair term in a standard form consumer or small business contract entered into.

A person can breach this prohibition multiple times in a single contract because each individual unfair term proposed may be considered a separate contravention.

The second prohibition means that a person will be in breach of the law if they apply or rely on an unfair term of a standard form consumer or small business contract or purport to do so. Again, a person can breach this prohibition multiple times in the same contract or even in relation to the same unfair term of the contract.

The powers of a court to order a pecuniary penalty will be in addition to making a declaration that a term is unfair.  

New Remedies

The proposed reforms will allow the court to make orders, upon the application of the regulator, preventing a term that is the same or substantially similar in effect to a term that has been declared as unfair, from being included in any future standard form small business or consumer contracts by a person who is the respondent to the proceeding where the declaration about an unfair contract term was made.

In February 2022 the proposed enhancements in the Bill were introduced as Schedule 4 of the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022.

The Schedule has seven parts affecting these provisions of the ACL actual or proposed:

Part 1, Prohibitions of Unfair Contract Terms, affects s 23 subss 2A, 2B and 2C;

Part 2, Remedies, affects s137 subss D, F and H and ss 227, 238, 242, 243 and 245;

Part 3, Determining what is a standard form contract, affects s 27;

Part 4, Contract Thresholds, affects s139 subss G and H and s 23 subss (4) and (5);

Part 5, Terms and Contracts excluded from rules about Unfair Contract Terms, affecting s 26(1) and ss 28 and 28(A);

Part 6, Provisions referring to non-party consumers, affecting s 2(1) and ss 239-241;

Part 7 Application Provisions, affecting ss 76, 77 and 78 of the ACL and provisions of the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Act 2022.

This second category of provisions here assumes enactment of Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022.

Conclusion

Even with the loss of the bill because of the election, the likely direction of immediate reform is that made clear by the bill. If that is so, it is a direction which the profession should heed and review its agreements as to costs. This is because it will be open to a regulator to seek to ensure that in its agreements as to costs the profession comply with any enhanced UCT regime or pay the proposed penalties for not doing so.

The author, Roger Quick, provides further discussion in “Quick on Costs”:

• Agreements as to costs and costs agreements [60.50]-[60.480]; and
• The ACL [60.490]- [60.830].

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