Unfair Contract Terms: What Changed in November 2023 and Why It Matters

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On 9 November 2023, the unfair contract terms regime in Australia changed fundamentally. What was previously a “please don’t do that” framework became a regime with real teeth — including civil penalties of up to $50 million for corporations.

If your business uses standard form contracts — and most businesses do — you need to understand what changed, and what you should be doing about it right now.

What Changed?

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) amended the unfair contract terms (UCT) provisions in both the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act). The key changes, which commenced on 9 November 2023, are:

1. Civil Penalties Now Apply

Previously, a court could only declare a term “unfair” and make it void. There were no financial penalties for including unfair terms in contracts. That has changed dramatically.

A court can now impose civil penalties for:

• Applying or relying on an unfair contract term
• Proposing a contract containing an unfair term

The maximum penalties are:

• Corporations: the greater of $50 million, three times the benefit obtained from the conduct, or 30% of adjusted turnover during the breach period
• Individuals: up to $2.5 million

These penalties are significant. They transform the UCT regime from a compliance afterthought into a genuine risk that demands board-level attention.

2. Broader Definition of “Small Business Contract”

The UCT regime previously applied to consumer contracts and small business contracts where one party employed fewer than 20 people and the contract value was below $300,000 (or $1 million for contracts over 12 months).

The amendments expanded the definition of “small business contract” so that it now applies where one party employs fewer than 100 people or has an annual turnover of less than $10 million. The upfront price threshold has been removed entirely.

This brings a significantly larger number of contracts within the regime.

3. Rebuttable Presumption

If a court has previously declared a term in a contract to be unfair, there is now a rebuttable presumption that the same or a substantially similar term in another contract used by the same party is also unfair.

What Is a “Standard Form Contract”?

The UCT regime applies to standard form contracts — contracts that are prepared by one party and offered to the other on a “take it or leave it” basis, with little or no opportunity for negotiation.

Under section 27 of the ACL, a contract is presumed to be a standard form contract unless the party relying on the contract proves otherwise. In determining whether a contract is standard form, the court considers factors including:

• Whether one party had all or most of the bargaining power
• Whether the contract was prepared by one party before any discussion
• Whether the other party was required to accept or reject the terms (without real negotiation)
• Whether the terms take into account the specific characteristics of the other party or the particular transaction

In practice, most template contracts, subscription agreements, terms of service, and pro forma supplier agreements will be standard form contracts.

What Makes a Term “Unfair”?

Under section 24 of the ACL, a term of a standard form contract is unfair if:

1. It would cause a significant imbalance in the parties’ rights and obligations under the contract
2. It is not reasonably necessary to protect the legitimate interests of the party who benefits from the term
3. It would cause detriment (financial or otherwise) to a party if it were applied or relied on

All three elements must be satisfied. The court must also take into account the contract as a whole and consider whether the term is transparent (expressed in reasonably plain language, legible, presented clearly, and readily available to the affected party).

Common Unfair Contract Terms

The following types of terms are commonly identified as potentially unfair:

Unilateral Variation Clauses

Terms that allow one party to change the contract terms (including price) unilaterally, without the other party’s consent. These create a significant imbalance because one party is locked in while the other can change the deal at will.

Automatic Rollover and Renewal Clauses

Terms that automatically renew or extend a contract unless the other party takes specific steps to opt out, particularly where the opt-out mechanism is onerous or the notice period is unreasonably long.

Broad Termination Rights

Terms that allow one party to terminate for convenience (or for trivial reasons) while the other party can only terminate for serious breach.

Excessive Limitation of Liability

Terms that limit one party’s liability to an unreasonably low amount, or that exclude liability entirely for matters within that party’s control.

Penalty-Like Clauses

Terms that impose disproportionate consequences for breach, such as forfeiture of deposits, inflated “liquidated damages,” or acceleration of all future payments.

Broad Indemnities

Indemnity clauses that require one party to indemnify the other against losses arising from the indemnifying party’s own conduct, or that are unreasonably broad in scope.

Unilateral Dispute Resolution

Terms that give one party the sole right to determine whether a breach has occurred, or that require disputes to be resolved in a forum that is inconvenient or disadvantageous to the other party.

What Should Businesses Do Now?

The penalty regime applies to contracts entered into, renewed, or varied on or after 9 November 2023. If your business uses standard form contracts — whether with consumers or small businesses — you should take the following steps:

1. Audit Your Contracts

Review all template contracts, terms and conditions, subscription agreements, and supplier agreements. Identify any terms that could be considered unfair under the regime.

2. Remove or Amend Unfair Terms

Where you identify potentially unfair terms, either remove them or amend them so they are balanced and reasonably necessary to protect your legitimate interests.

3. Ensure Transparency

Make sure your contracts are written in plain language, clearly formatted, and readily available to the other party before they sign. Transparency won’t save an unfair term, but a lack of transparency can be an additional factor against you.

4. Train Your Team

Ensure that your sales, procurement, and contract management teams understand the UCT regime and know not to propose or rely on terms that could be unfair.

5. Get Legal Advice

If you’re unsure whether your contracts comply with the new regime, get a professional review. The cost of a contract audit is a fraction of the potential penalties for non-compliance.

At Boss Lawyers, our contract law team regularly reviews and updates commercial contracts to ensure compliance with the UCT regime. We can also assist if you’re on the receiving end of a contract containing unfair terms.

What If You’re on the Receiving End?

If you’ve been presented with a standard form contract containing terms you believe are unfair, you have options:

• Negotiate. Ask for the unfair terms to be removed or amended. The fact that you attempted to negotiate may also be relevant to whether the contract is “standard form.”
• Seek legal advice. A commercial lawyer can advise on whether the terms are likely to be considered unfair and what your options are.
• Report it. You can report potentially unfair contract terms to the ACCC or the relevant state or territory consumer protection agency.

Contact Boss Lawyers

Whether you need to audit your contracts for UCT compliance or you’re dealing with a contract dispute involving unfair terms, Boss Lawyers can help. Contact us on 1300 267 711 or visit us at Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000.

For expert legal assistance, speak with our director dispute lawyers today.

This is general information only and is not legal advice. You should obtain legal advice specific to your circumstances.