The unfair contract terms regime of the Australian Consumer Law [Competition and Consumer Act 2010 (Cth) sch 2 ss 23 - 28] apply to contracts entered into by consumers, or by small businesses who employ less than 100 people and who have an annual turnover less than $10 million.

In the case of contracts for financial products and services, an unfair contract term regime similarly applies to contracts entered into by consumers and small businesses. However, for the regime to apply to a small business the upfront price payable under the contract must also not exceed $5 million [Australian Securities and Investments Commission Act 2001 (Cth) s 12BF]. For a contract where credit is to be provided, interest is to be disregarded in counting the upfront price.

Prior to 9 November 2023, there were different criteria for the application of the unfair contract terms regime to small businesses in relation to the number of employees and the value and/or length of the contract.

The regime means that a court can declare that a term of a standard form contract is void if it considers the term is "unfair". Penalties and other remedies may also be sought from the regulators or a person who has suffered or is likely to suffer loss or damage because of the unfair term.

What is a standard form contract?

A standard form contract is one that has been prepared by one party to the contract (the supplier). The other person to the contract is given little or no effective opportunity to negotiate more favourable terms and must either ‘take it or leave it’.

Examples of consumer transactions covered by the provisions include contracts for:

Credit contracts (loans, credit cards) are generally covered by the National Credit Code. For more information see Problems with Credit Contracts.

Small businesses may also be presented with a standard form contract on a 'take it or leave it' basis. Some examples include:

When can a term be declared unfair?

A term will be declared unfair by a court if it can be established that a term in such a contract:

All three conditions (i.e. ‘significant imbalance’, ‘not reasonably necessary’ and ‘cause detriment’) must be met before a court will decide a term is unfair.

Examples of an unfair term include:

[see Competition and Consumer Act 2010 (Cth), Schedule 2 s 25]

Unfair terms may exist in any type of consumer or small business contract. Be careful of online contracts and take the opportunity to read them carefully. If there is anything you do not understand, you should ask the supplier.

Lengthy contracts may include hidden terms that disadvantage the consumer. A contract that is not written in plain language or is hard to navigate may also be unfair.

Small businesses may find some useful examples of the types of terms that are considered unfair on the ACCC website under Contracts

What happens if a term is found unfair?

If a court declares that a term of a contract is unfair, only that term is declared void. The remainder of the contract will bind the parties, assuming it is able to operate without the term [s 23(1)-(2)].

From 10 November 2023, a penalty may be imposed where a person makes a consumer or small business standard form contract containing an unfair term they proposed [s 23(2A). A penalty may also be imposed if they rely on an unfair contract term contained in a standard form consumer or small business contract [s 23(2C)].

Similarly, if a person has suffered, or is likely to suffer, loss or damage because another person has contravened the law prohibiting unfair contract terms in standard form contracts as above, then they or the regulator on their behalf (ACCC or ASIC), may apply for orders (other than an award of damages) to redress the loss or damage [s 243A]. The regulator may also apply for an injunction preventing the use of the unfair contract term in the future and preventing the application or reliance on the term in any other existing contract [s 243B].

Terms excluded from the unfair terms provisions

The following contract terms are excluded from the unfair terms provisions [s 26]:

What to do if you think a consumer contract term is unfair

More information for consumers and small business

More information about unfair contract terms for consumers can be found on the ACCC website under Unfair Contract Terms. For small business, visit the ACCC website Business Rights and Protections page.