From 9 November 2023, every unfair term hidden in a standard-form contract became illegal, and the price of non-compliance is eye-watering. Courts can now impose penalties of up to $50 million per unfair term, or three times the benefit gained, or 30 % of a company’s turnover during the breach period, whichever is higher.
Why the law changed
The original unfair contract terms (UCT) regime, introduced in 2010, let courts void dodgy clauses but left little deterrent for repeat offenders. Parliament has closed that loophole: by making unfair terms unlawful, regulators, and aggrieved customers, finally have teeth. The ACCC has already urged businesses to “remove or amend any unfair terms before new penalties take effect.”
Who is now protected?
A “small business contract” now covers any deal where at least one party:
– Employs fewer than 100 people (up from 20); or
– Had under $10 million turnover in the previous financial year,
provided the upfront price is $5 million or less. Thousands of suppliers, franchisees and licensees that once fell outside the regime are suddenly in scope.
Some easy to spot unfair terms
– Automatic renewals with no straightforward opt-out
– Unilateral price hikes or service downgrades
– One-sided termination rights
– Unlimited liability exclusions
If a term creates a “significant imbalance”, isn’t “reasonably necessary” to protect legitimate interests, and would harm the other party if enforced, it is likely unfair.
Penalties in simple terms
Offender: Maximum Penalty Imposed per Unfair Term
Corporation: Greater of: $50 million; 3x benefit obtained; or 30% of adjusted turnover.
Individual: $2.5 million
Each dodgy clause is a separate contravention, so a contract with six unfair provisions could expose a business to $300 million in fines.
How to ensure you are compliant
1. Identify your standard-form contracts: T&C’s, service agreements, franchise packs, employment letters, etc.
2. Run the “could we, would we” test: If you hold a unilateral power you would never reasonably exercise, the clause is probably unnecessary.
3. Rewrite or justify: Remove the term, or document why it is genuinely needed and proportionate.
4. Document negotiations: A heavily negotiated contract is less likely to be classed as “standard form”.
5. Engage in training: Give sales teams scripts that explain fair contract terms to customers.
6. Schedule annual reviews: The new penalties apply to any contract entered into, renewed or varied after 9 November 2023.
Consequences beyond fines
An unfair term can still be declared void, leaving your agreement lopsided or unworkable. Worse, publicised court action can tank brand reputation and attract class actions.
Bilbie Faraday Harrison offers clear, practical advice across a broad range of legal issues. If you need assistance or would like to discuss your situation with our team, get in touch, we’re here to help.
The information provided on this website is intended for general informational purposes only. It does not constitute legal advice and should not be relied upon as a substitute for professional legal consultation. We do not accept any liability for loss or damage arising from reliance on the material contained on this site.
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