Unfair contract term examples in Australian small business contracts

Most small business contracts arrive pre-written. A supplier sends you their standard terms, a SaaS platform presents a click-to-accept agreement, an equipment hire company hands you a template — and you're expected to sign. Because these contracts are drafted by the other side, they often contain clauses that work heavily in that party's favour. When that imbalance is serious enough, Australian law treats the clause as void.

The unfair contract terms (UCT) regime under the Australian Consumer Law (ACL) — Schedule 2 of the Competition and Consumer Act 2010 (Cth) — prohibits unfair terms in standard form consumer and small business contracts. Since 9 November 2023, it is not just that an unfair term can be struck out; proposing, applying, or relying on one is unlawful, and the penalties are significant: for corporations, courts can impose the greater of $50 million, three times the benefit obtained, or 30 per cent of adjusted turnover during the breach period; for individuals, up to $2.5 million.

Under the 2023 changes, a small business contract is one where at least one party employs fewer than 100 people or has an annual turnover of less than $10 million. The previous contract value threshold has been removed entirely — the protections now apply regardless of the dollar value of the contract.

The test in s 23 of the ACL asks whether a term: (1) creates a significant imbalance in the parties' rights and obligations; (2) is not reasonably necessary to protect a legitimate interest of the advantaged party; and (3) would cause detriment — financial or otherwise — if relied upon. Section 25 provides a non-exhaustive list of clause types that may satisfy that test. The ten examples below draw on that list and on the patterns that have attracted ACCC attention.

Ten unfair contract term examples

Unilateral price increase with no exit right

The facts. A supplier's standard terms read: "We may increase our fees at any time on 14 days' notice. Continued use of the service constitutes acceptance." The small business is locked into a 24-month minimum term with a steep early exit fee.

Why it crosses the line. The supplier can reprice at will; the small business cannot exit without penalty. The imbalance is structural — one party controls both the price and the cost of leaving. A 14-day notice period is almost always too short for a business to restructure its operations or procurement.

The counter-factual. The clause would be far more defensible if price increases were capped (for example, at CPI), were accompanied by a genuine right to terminate without penalty if the increase exceeds a defined threshold, and required a commercially reasonable notice period.

Unilateral variation — "we can change anything at any time"

The facts. Platform terms provide: "We may modify these terms at any time. Your continued use of the platform after any modification constitutes your agreement to the modified terms."

Why it crosses the line. A clause that allows the drafter to rewrite the entire contract unilaterally — scope, fees, obligations — makes the agreement meaningless as a record of what was actually agreed. Section 25(b) of the ACL specifically identifies the right to vary terms to the detriment of the other party as a type of term that may be unfair.

The counter-factual. Variation clauses that are limited in scope (for example, allowing only technical updates, or changes required by law), require reasonable notice, and are paired with a no-penalty termination right are far more likely to survive scrutiny.

One-sided termination rights

The facts. A service agreement provides: "We may terminate this agreement for convenience at any time on 5 days' notice. You may only terminate at the end of the minimum term, on 90 days' written notice."

Why it crosses the line. The supplier can exit instantly; the small business is bound for the entire minimum term. If the small business has made upfront investments — onboarding, training, marketing spend, or stock — to support the relationship, it bears the full commercial risk of a counterparty that can simply walk away. Section 25(c) of the ACL identifies one-sided termination rights as an example of potentially unfair terms.

Automatic renewal with a narrow opt-out window

The facts. A contract renews automatically for a further 12 months "unless the customer provides written notice of non-renewal no fewer than 90 days before the end of the current term."

Why it's a risk. Auto-renewal clauses are not automatically unfair, but they become problematic when the opt-out window is unreasonably early, not prominently disclosed, or combined with large termination penalties for exiting after the renewal triggers. A 90-day notice window effectively requires the small business to decide whether to renew the contract three months before it expires — often before it has enough information to make a sound commercial decision.

Practical step. When signing any fixed-term contract, immediately calendar both the renewal date and the opt-out deadline. Systems that flag these dates avoid inadvertent lock-in.

Broad indemnity that includes the other party's own negligence

The facts. "You indemnify us against all claims, losses, costs, and expenses of any kind arising from your use of the services, whether or not caused by our negligence."

Why it crosses the line. Indemnity clauses are commercially normal. What makes this one problematic is the words "whether or not caused by our negligence." The small business is agreeing to compensate the supplier even for harm the supplier caused. This is doubly problematic when paired with a liability cap that protects the supplier in the same contract.

The counter-factual. A defensible indemnity is limited to losses caused by the indemnifying party's own acts or omissions, is capped at a commercially reasonable amount, and excludes losses flowing from the other party's breach or negligence.

Liability cap protecting only one party

The facts. "Our total liability under this agreement is capped at $100, regardless of the nature or cause of the claim. Your liability to us is unlimited."

Why it crosses the line. Limitation of liability clauses are standard commercial practice and not inherently unfair. What makes this clause problematic is the combination: a nominal cap on the supplier's exposure and no corresponding limit on the small business's exposure. If a service failure causes significant loss — for example, a payment platform outage that prevents a business from trading — the cap renders the supplier's contractual obligations effectively unenforceable.

A more proportionate structure caps liability for both parties at a comparable amount (often the fees paid in the preceding 12 months) and carves out specific categories — fraud, wilful misconduct, death or personal injury — from the cap altogether.

Sole discretion clauses

The facts. "We may determine in our sole and absolute discretion whether you have complied with this agreement, and our determination shall be final and binding."

Why it crosses the line. This clause appoints the other party as sole arbiter of disputes about the small business's own performance. There is no objective standard, no independent review, and no right of challenge. When the consequence of a finding of non-compliance is suspension, termination, or a financial penalty, this structure creates significant exposure. Section 25 identifies terms that allow one party to decide disputes as an example of potentially unfair terms.

Harsh payment terms with no invoice dispute mechanism

The facts. "Payment is due immediately on receipt of invoice. Interest accrues at 20% per annum on overdue amounts. All collection costs are recoverable on a full indemnity basis. You may not withhold or set off any amounts against sums due to us."

Why it's a risk. Strong payment terms are not inherently unfair. The problem arises when the clause removes any mechanism for the small business to dispute an incorrect invoice — it cannot set off amounts it is legitimately owed, cannot withhold payment while a dispute is resolved, and faces 20% interest from day one. The combination of no dispute right and steep penalties is what creates the imbalance.

Blanket "no refund" clause

The facts. "All fees paid under this agreement are non-refundable in all circumstances."

Why it's a risk. A clause that removes any entitlement to a refund regardless of the circumstances — including the supplier's own failure to deliver the service, a fundamental change to what is being supplied, or termination triggered by the supplier — is likely to be disproportionate. The clause should at minimum be carved back to exclude situations where the supplier has failed to perform its core obligations.

One-sided evidence clause

The facts. "Our records are conclusive evidence of the services provided, amounts owing, and usage data under this agreement."

Why it crosses the line. An evidentiary clause that makes the other party's own records final and unimpeachable removes a basic protection: the ability to challenge inaccurate invoices or disputed service records. The difficulty is compounded where the small business does not have independent access to the underlying usage data. Clauses of this type are most commonly seen in technology and platform contracts.

The pattern across these examples

Read together, these clauses share a common structure: they transfer commercial risk onto the small business while insulating the drafter from accountability. The supplier can change the contract, set prices, exit the relationship, determine performance disputes, and cap its own liability — all without corresponding rights on the other side. The UCT regime responds to exactly this structural asymmetry.

Three factors most reliably indicate a clause is likely to be unfair:

• Asymmetry in identical rights — the supplier can do something the small business cannot, for no commercially justified reason (termination for convenience, unilateral price increases, sole discretion findings).
• Removal of recourse — the small business has no mechanism to challenge, dispute, or exit without penalty, even where the problem is the other party's conduct (conclusive evidence clauses, no-set-off combined with no dispute process, nominal liability caps).
• Scope broader than the legitimate interest — the clause is drafted to cover more than is reasonably necessary to protect the drafter's genuine commercial interests (indemnities extending to the drafter's own negligence, blanket no-refund clauses, variation rights that extend to all terms).

Key takeaways:

• A clause is not unfair simply because it favours the drafter — one-sided terms are unfair only when the imbalance is significant, the clause is not reasonably necessary, and it would cause detriment if relied on.
• Standard form status is assessed on substance: was it offered on a take-it-or-leave-it basis, with no real opportunity to negotiate material terms?
• Since 9 November 2023, it is unlawful to propose an unfair term in a standard form contract — not just to enforce one. This means businesses using their own standard terms need to audit them, not only businesses signing other parties' contracts.
• The contract value threshold has been abolished. Any standard form contract with a small business (fewer than 100 employees or under $10 million turnover) is potentially in scope, regardless of what the contract is worth.
• When reviewing a proposed contract, the most useful question is: if I held this clause up to a judge and explained that the other party drafted it, used it in every contract, and never negotiated it — would the judge think it was fair?

How Artificer Legal can help you assess your contracts

The test under s 23 of the ACL requires a close reading of the full contract in context — not just the individual clause. A clause that looks problematic in isolation may be justifiable given the nature of the services, the industry context, or balancing terms elsewhere in the agreement. Equally, a clause that appears routine may be unfair when read alongside a liability cap and an indemnity in the same document.

An Artificer Legal practitioner would assess a contract for UCT risk by examining the whole agreement: identifying clauses that create structural asymmetry, testing whether any legitimate commercial interest justifies the imbalance, and considering whether the contract as a whole was truly standard form or genuinely negotiated. If you are issuing standard terms to customers or clients, the same analysis applies in reverse — your own terms need to meet the ACL standard, and the 2023 reforms mean that exposure sits with the business proposing the term, not only the business accepting it.

The clause that reaches beyond a genuine interest

The one factor that most reliably separates unfair from merely one-sided is this: does the clause give the drafter a right or protection that is broader than what is reasonably necessary to protect a genuine commercial interest? A supplier legitimately needs protection against non-payment. A clause that removes all invoice dispute rights goes further than that. A platform legitimately needs to update technical documentation. A clause that permits rewriting all commercial terms on notice goes further than that. When a clause overshoots the legitimate interest it is said to protect, it is a strong candidate for a finding of unfairness.

The key points introduced in this article: the UCT regime under s 23 of the ACL applies to standard form small business contracts where at least one party employs fewer than 100 people or has turnover under $10 million annually; the contract value threshold no longer applies; since 9 November 2023, proposing or relying on an unfair term is prohibited and attracts penalties of up to $50 million for corporations and $2.5 million for individuals; and the types of clauses most likely to be unfair are those that create structural asymmetry by transferring risk unilaterally, removing recourse, or extending well beyond what is necessary to protect a legitimate commercial interest.