Unfair Contract Terms in Australian Business Contracts: The Post-2023 Regime

The Statutory Framework

Two parallel regimes apply. Sections 23–28 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) apply to consumer contracts and small business contracts generally, enforced by the ACCC. Sections 12BF–12BM of the Australian Securities and Investments Commission Act 2001 (Cth) apply to financial products and services, enforced by ASIC. The substantive tests, the small business threshold and the penalties are the same across both regimes.

The Expanded Small Business Threshold

Before the reforms, a small business was defined as a party with fewer than 20 employees, and only where the upfront price payable under the contract was under $300,000 (or under $1m for contracts longer than 12 months). The 2023 reforms replaced this with a single threshold: at the time of entering the contract, the party has fewer than 100 employees or annual turnover in the previous income year of less than $10m. The transaction-value cap was removed altogether.

The practical effect is significant. Most Australian SMEs, most franchisees, most retail tenants, most contracted service providers, most equipment lessees and most trade customers now sit inside the small business definition. Business-to-business standard form contracts that were previously outside the regime are now inside it.

What Is a Standard Form Contract?

A standard form contract is a contract prepared by one party and offered on a take-it-or-leave-it basis, without effective opportunity to negotiate the substantive terms. Section 27 of the ACL directs the Court to consider factors including the relative bargaining power of the parties, whether the contract was drafted before discussions, whether the other party was effectively required to accept or reject the terms, and whether the other party had an effective opportunity to negotiate.

The reforms clarified that a contract is not prevented from being 'standard form' merely because a party had an opportunity to negotiate minor changes, select from a range of options prepared by the drafting party, or negotiate specific commercial items like price, quantity or delivery date. This closed the common defence that a contract was 'negotiated' because the price was discussed.

When Is a Term Unfair?

Section 24 sets a three-limb test. A term is unfair if:

1. it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
2. it is not reasonably necessary to protect the legitimate interests of the party benefiting from it; and
3. it would cause detriment (financial or otherwise) to a party if it were applied or relied on.

The transparency of the term and the contract as a whole are also relevant. A term that is not transparent (that is, not expressed in reasonably plain language, legible, presented clearly and readily available) is more likely to be found unfair. The party seeking to enforce the term bears the onus of proving it is reasonably necessary to protect a legitimate interest.

Examples of Terms Likely to Be Unfair

Section 25 provides a non-exhaustive list of examples:

• terms permitting one party (but not another) to unilaterally avoid or vary the terms;
• terms permitting one party unilaterally to terminate;
• terms penalising one party (but not another) for breach or termination;
• terms permitting one party unilaterally to vary the upfront price without a corresponding right in the other party to terminate;
• terms permitting one party unilaterally to vary the characteristics of goods or services;
• terms permitting one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
• terms limiting one party's vicarious liability for its agents;
• terms permitting one party to assign without consent to the detriment of the other party;
• terms limiting one party's right to sue the other;
• terms limiting the evidence one party can adduce in proceedings;
• terms imposing an evidential burden on one party.

The Penalty Regime

Since 9 November 2023, proposing, using or relying on an unfair term in a covered standard form contract is a civil penalty contravention under the Competition and Consumer Act 2010 (Cth) and the ASIC Act 2001 (Cth). The applicable maximum penalty per contravention differs for bodies corporate and individuals and is calculated by reference to the formulae in the current legislation (including, for a body corporate, alternatives measured against the benefit obtained or, where that cannot be determined, a proportion of adjusted turnover). The current maximum amounts, indexation and multipliers should be confirmed against the current text of the legislation and ACCC/ASIC guidance before relying on any specific figure.

Proposing, applying and relying on an unfair term are each capable of being a separate contravention, and a single standard form contract used with many counterparties can generate meaningful cumulative exposure. The scale and nature of any penalty in a given case is a matter for the Court on the evidence and applicable sentencing principles.

Excluded Terms

Three categories of term are excluded from unfairness assessment (section 26): the upfront price payable; terms that define the main subject matter of the contract; and terms required or expressly permitted by a law of the Commonwealth, a state or a territory. The exclusions are narrow. The vast majority of clauses in a typical standard form business contract — indemnities, limitations of liability, termination rights, variation rights, notice periods, assignment restrictions — remain subject to the unfairness test.

Practical Contract Remediation

The practical response to the 2023 reforms is a structured contract audit. A typical scope covers:

1. Contract inventory. Identify every standard form contract used with a consumer or small business counterparty, including customer terms and conditions, supplier terms, franchise, distribution, licensing, IT services, finance, tenancy and professional-services engagement letters.
2. Risk triage. Prioritise by volume of counterparties, sensitivity of the terms and counterparty risk.
3. Clause review. Assess each hard-edge clause against the three-limb section 24 test — significant imbalance, reasonably necessary, detriment.
4. Legitimate-interest documentation.Record the specific commercial purpose each remaining hard-edge clause protects.
5. Balance and transparency. Add reciprocal rights, notice periods, cure periods and plain-English drafting.
6. Roll-out. Update customer-facing collateral, quote packs and CRM contract templates so the remediated terms are actually the ones used.
7. Training. Sales, procurement and account-management teams need to understand what they can and cannot vary in the field.

Interaction With Adjacent Regimes

The UCT regime applies alongside — not instead of — other regimes. The Franchising Code of Conduct supplements the UCT regime for franchise agreements (see our companion franchising code article). The Retail Leases Act 2003 (Vic) applies to Victorian retail leases in addition to the UCT regime. The unconscionable conduct provisions of the ACL and the Banking Code of Practice apply to guarantees alongside the UCT regime (see our companion personal guarantees article).

Enforcement Trend Since November 2023

The ACCC and ASIC have publicly identified unfair contract terms as a compliance and enforcement priority in every enforcement and compliance priority statement since 2023. Enforcement action naming specific unilateral variation, automatic renewal, unlimited indemnity and 'evergreen' clauses predates the penalty regime — for example the Federal Court's declarations in ACCC v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 928, in which 38 terms across 11 small business contracts were declared unfair and void. ASIC and the ACCC have both commenced proceedings seeking the new civil penalties for conduct occurring on or after 9 November 2023, and businesses should expect penalty outcomes — not just voidance — to follow in due course. Regulator focus areas so far include agriculture, franchising, financial services, IT and telecoms services, and business finance.

Related Guides

For the broader commercial contract framework, see our commercial contracts guide. For warranties and indemnities specifically, see our representations, warranties and indemnities article. For campaign-specific issues, see our guide to advertising and influencer marketing law in Australia.

Frequently Asked Questions