Standard form contracts are a fact of commercial life. Software subscriptions, supplier agreements, franchise deeds, SaaS terms of service — almost every business both signs them and issues them. Since 9 November 2023, however, the rules changed significantly. It is no longer enough to avoid terms that a court might later declare void. Businesses that propose, use, or rely on an unfair term in a standard form contract now face civil penalties of up to $50 million per contravention. That shift from a remedy to a prohibition is worth understanding clearly.
This article explains what an unfair contract term is under Australian law, how to identify one, which contracts and terms fall outside the regime, and where professional help is typically needed.
Key topics covered:
- What the law says and who enforces it
- What makes a term "unfair" — the three-part test
- Which contracts and terms the regime does (and does not) cover
- Common examples of unfair terms
- Where businesses go wrong
- How a lawyer can help
What the law says and who enforces it
The unfair contract terms (UCT) regime is set out in Division 2 of Part 2-3 of the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)), and a parallel regime applies to financial products and services under the Australian Securities and Investments Commission Act 2001 (Cth).
The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 significantly strengthened both regimes. From 9 November 2023:
- Proposing, using, or relying on an unfair term in a standard form contract is prohibited, not merely challengeable.
- Courts may impose civil penalties — for a single contravention, the greater of $50 million, three times the value of the benefit obtained, or (if the benefit cannot be determined) 30% of the company's adjusted turnover during the period of the conduct.
- The maximum penalty for an individual is $2.5 million per contravention.
The ACCC enforces the UCT regime for consumer and small business contracts. ASIC enforces it for financial products and services, including general and life insurance contracts (which have been subject to the regime since 5 April 2021).
What makes a term "unfair" — the three-part test
Under s 24 of the ACL, a term is unfair if it satisfies all three of the following:
- Significant imbalance — it creates a significant imbalance in the parties' rights and obligations under the contract.
- Not reasonably necessary — it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term. Once a challenger establishes significant imbalance and detriment, the burden shifts to the advantaged party to show the term is reasonably necessary.
- Detriment — it would cause financial or non-financial detriment to the other party if applied or relied on.
This three-part test was confirmed and applied by the Federal Court in ACCC v Chrisco Hampers Australia Ltd [2015] FCA 1204, which remains the leading early authority on how each limb operates in practice.
A court must also have regard to the contract as a whole. A term that looks one-sided in isolation may be balanced by other terms — or may be made worse by them.
Which contracts the regime covers
Standard form contracts
The UCT regime only applies to standard form contracts. Under s 27 of the ACL, courts consider several factors when deciding whether a contract is a standard form contract:
- whether one party had all or most of the bargaining power
- whether the contract was prepared by one party before negotiation began
- whether the other party was, effectively, required to accept or reject the terms as presented
- whether the other party was given any genuine opportunity to negotiate the terms
The 2023 amendments added two further factors: whether the party who prepared the contract has made the same or substantially similar contracts many times, and the number of times they have done so.
Importantly, a contract is not automatically taken outside the regime because the other party had an opportunity to negotiate minor or insubstantial terms, could select a term from a range of options, or a third party was able to negotiate different terms.
Consumer and small business contracts
The regime applies to consumer contracts and small business contracts. For a contract to be a small business contract, at least one party must be a business that employs fewer than 100 persons or has an annual turnover of less than $10 million. The 2023 reforms removed the previous cap on contract value, so the regime now applies regardless of how much the contract is worth.
Insurance
General insurance and life insurance contracts entered into, or renewed, from 5 April 2021 are subject to a parallel UCT regime under the ASIC Act, enforced by ASIC. Private health insurance and re-insurance contracts are outside the scope of the Insurance Contracts Act regime and are not covered.
Terms excluded from the regime
Not every term in a standard form contract can be challenged as unfair. Three categories of terms are excluded from assessment:
- Main subject matter — terms that define what the contract is fundamentally about. If a services contract is for cloud storage, the term describing what storage is provided is excluded.
- Upfront price — terms that set the price disclosed at the time the contract is agreed. Note that the exclusion is narrow: it covers the initial, disclosed consideration only. Fees, levies, and charges that arise later — or that were not clearly disclosed upfront — fall outside the exclusion and can be challenged.
- Terms required by law — terms that are expressly required or permitted by another Commonwealth, state or territory law.
Common examples of unfair terms
Section 25 of the ACL sets out a non-exhaustive list of the kinds of terms that may be unfair. These include terms that:
- allow only one party to avoid or limit their obligations under the contract
- allow only one party to terminate the contract
- impose a penalty on only one party for breach or termination
- allow only one party to vary the contract terms
- allow only one party to determine whether a breach has occurred
- allow one party to automatically renew a contract without giving the other party a reasonable opportunity to refuse renewal
- limit one party's right to sue or impose a limitation period that is shorter than the one available at law
None of these automatically makes a term unfair — the three-part test still applies. But if your standard-form terms include any of these features and you are the party who drafted them, you should be able to articulate why the term is reasonably necessary to protect your legitimate interests.
Where businesses go wrong
Most UCT exposure arises not from deliberate sharp practice but from contracts that have not been reviewed since the 2023 changes came into effect. Common problem areas include:
- Unilateral variation clauses — terms that let a supplier change pricing, features, or service levels at any time with short or no notice, without giving the other party the right to exit.
- One-way termination rights — allowing the supplier to terminate for convenience with minimal notice while locking the customer into a fixed term with heavy exit fees.
- Excessive liability caps — capping the supplier's liability at a nominal figure (say, the last month's fees) while imposing wide indemnities running the other way.
- Automatic rollover terms — renewing contracts for a full further term automatically, with a notice window that is easy to miss.
- Non-disparagement or review-restriction clauses — terms preventing a customer from posting honest reviews or making any public comment about their experience. The ACCC has successfully pursued businesses over these: in ACCC v Fowler Homes Pty Ltd, the builder admitted to using unfair contract terms that prevented customers from publishing negative reviews.
- Undisclosed fees — charges that are payable on the occurrence of certain events but are buried in schedules or defined terms rather than disclosed as part of the upfront price.
A term that may have been standard industry practice before November 2023 can now attract a substantial civil penalty if relied upon in a standard form small business or consumer contract.
How Artificer Legal can help
Reviewing a contract for unfair terms requires more than running an eye over whether the language "sounds fair". The legal analysis involves applying the three-part test to each term in the context of the contract as a whole, identifying which exclusions apply, and forming a view on the likely judicial approach to terms that sit in the grey area.
A lawyer will typically:
- Identify whether the regime applies — confirm whether the contract is a standard form contract, and whether the counterparty qualifies as a consumer or small business within the relevant thresholds.
- Map the terms against the s 25 list — flag any terms that exhibit the structural features most commonly found unfair, and assess whether they can be justified as reasonably necessary.
- Audit excluded terms — confirm that terms being treated as excluded (upfront price, main subject matter) genuinely fall within those categories, given how narrowly courts have read them.
- Redraft problem clauses — propose language that achieves the same commercial purpose without the risk profile. In many cases, a mutual right (rather than a unilateral one) removes the significant imbalance without materially disadvantaging the drafter.
- Advise on transition — if the contract is currently in use with multiple counterparties, advise on whether existing contracts need to be amended and how to document the changes.
If you are issuing standard form contracts to customers or other businesses, or if you have signed one that you believe operates unfairly against you, the time to get advice is before the contract is invoked — not after a dispute has arisen.
The bottom line
The UCT regime has always given courts the power to declare unfair terms void. What changed in November 2023 is that the regime became a prohibition, with penalties that can reach $50 million. For any business that issues standard form contracts at scale, that is a material legal risk that warrants a systematic review — not just a one-off check.
Key points to take away:
- A term is unfair if it creates a significant imbalance, is not reasonably necessary, and would cause detriment — all three elements must be present.
- The regime covers consumer contracts and small business contracts (fewer than 100 employees or under $10 million annual turnover), with no contract value cap since November 2023.
- Three categories of terms are excluded: main subject matter, upfront price (narrowly construed), and terms required by law.
- Proposing or relying on an unfair term is now prohibited and may attract penalties — not merely a court declaration that the term is void.
- If your business issues standard form contracts, a targeted legal review is the most cost-effective way to reduce this exposure.