Understanding Unfair Contract Terms

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Under the Australian Consumer Law, a contract term is unfair if it appears in a standard form consumer or small business contract, creates a significant imbalance between the parties’ rights, is not reasonably necessary to protect a legitimate interest, and would cause detriment if relied on. Since 9 November 2023, protection extends to small businesses with fewer than 100 employees or under $10 million in annual turnover, with no cap on contract value. Businesses that use or rely on an unfair term risk penalties of up to $50 million per breach.

Signing a contract as a consumer or small business can be daunting, given the length and complexity of most legal documents, not to mention the industry jargon that goes over the head of even a well-informed reader. To level the playing field, the Competition and Consumer Act 2010 contains an unfair contract term regime that lets courts strike out terms that unfairly favour the party who drafted the contract. In this article, our commercial law team explains how the regime works, what’s changed since it was expanded in 2023, and how it’s being enforced in practice.

BACKGROUND: UNFAIR CONTRACT TERMS

The Australian Consumer Law (ACL) sets out the rights of consumers and small businesses and the obligations of those who supply goods and services. Among other things, it prohibits a party from proposing, using, or relying on unfair contract terms.

That protection only applies in specific circumstances. To rely on it, three things need to be shown:

1. the contract is a Small Business Contract or Consumer Contract;
2. the contract is a Standard Form Contract; and
3. the term in question is unfair within the meaning of the ACL.

Each is explained below.

SMALL BUSINESS AND CONSUMER CONTRACTS

A Consumer Contract is one where at least one party is an individual acquiring goods or services wholly or predominantly for personal, domestic, or household use.

A Small Business Contract exists where:

• the contract is for the supply of goods or services;
• at the time of the contract, at least one party is a business with fewer than 100 employees or under $10 million in annual turnover; and
• there is no longer any contract value threshold to meet (this was removed as part of the 2023 reforms, discussed below).

If you’re a small business entering into a standard supplier or platform agreement, it’s worth checking whether you fall within this definition, because it’s broader than most people expect.

STANDARD FORM CONTRACTS

A Standard Form Contract is one prepared entirely by one party and offered on a take-it-or-leave-it basis. Courts typically look at:

• whether the party that prepared the contract held all or most of the bargaining power;
• whether the contract was prepared before any discussion between the parties about the transaction;
• whether the other party’s only real options were to accept or reject the terms as presented; and
• whether the terms reflect the specific characteristics of the other party or the transaction.

Importantly, minor negotiated changes (for example, tweaking a start date or a notice period) won’t take a contract outside this definition. It’s still a standard form contract if the substance was never really up for discussion.

WHAT MAKES A TERM “UNFAIR”

A term will be unfair if it:

• would cause a significant imbalance between the parties’ rights and obligations;
• is not reasonably necessary to protect the legitimate interests of the party it favours; and
• would cause financial or other detriment to a party if relied on.

The ACL doesn’t provide one definitive list, but terms commonly found (or argued) to be unfair include automatic renewal clauses, terms allowing unilateral price increases, one-sided termination rights, and broad indemnities that only run one way. If you’re negotiating a commercial agreement, these are the clauses worth scrutinising first.

THE 2023 CHANGES TO SCOPE

From 9 November 2023, the scope of the regime was expanded. A Small Business Contract now includes businesses that:

• employ 100 or fewer employees; or
• make less than $10 million in annual turnover.

The previous contract value threshold (between $300,000 and $1,000,000) was removed entirely, and the definition of Standard Form Contract was clarified to confirm that minor negotiated changes don’t take a contract outside the regime.

TOUGHER PENALTIES

Penalties for using or relying on unfair contract terms were also significantly increased. The maximum penalty for a company is now the greater of:

• $50 million;
• three times the value of the reasonably attributable benefit obtained from the conduct (if that can be worked out); or
• if a court can’t determine the benefit, 30% of adjusted turnover during the breach period.

The maximum penalty for an individual is $2.5 million.

THE REGIME IN ACTION

These aren’t just theoretical numbers. In June 2025, the ACCC accepted its first court-enforceable undertaking under the expanded regime, from care-services platform Mable Technologies, over penalty fees charged to support workers and terms allowing Mable to vary fees unilaterally. The company admitted the terms breached the ACL and agreed to amend its contracts and implement a compliance program.

The courts have also been testing where the line sits. Under the mirror unfair contract term provisions that apply to financial products and services, HCF Life was penalised $750,000 in 2025 over a misleading contract term (with ASIC’s subsequent appeal dismissed in 2026), while the Full Federal Court found in favour of Auto & General Insurance, holding that a broadly worded notification clause was not unfair because it was accompanied by clear examples. Together, these cases show that regulators are actively enforcing this regime, and that not every broad or one-sided-looking clause will automatically fail.

HOW RAMSDEN LAWYERS CAN HELP

These changes apply to contracts made or renewed, or terms varied or added, after 9 November 2023. The ACCC has actively encouraged businesses to review their contracts and remove potentially unfair terms, rather than risk substantial penalties and regulatory scrutiny.

If you’re reviewing a contract, negotiating a new agreement, or think a term you’ve been asked to sign might be unfair, Ramsden Lawyers can help. We offer an obligation-free initial consultation to help you navigate these provisions for your specific circumstances, and if a dispute has already arisen, our contract disputes team can assist.

The content of this article is intended to provide general guidance on the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.