Information Centre · Commercial & Business Law
Unfair Contract Terms in Australian Business Contracts: The Post-2023 Regime
Since 9 November 2023 unfair contract terms in Australian standard form contracts have carried civil penalties of up to $50 million per contravention. This guide explains what changed, who is covered, what makes a term unfair and the practical audit every business using standard terms should now run.
Key points
- From 9 November 2023 the unfair contract terms (UCT) regime under the Australian Consumer Law (Schedule 2 of the CCA) and the ASIC Act applies civil penalties for the first time — the ACCC, ASIC and the Federal Court can order penalties of up to $50m per contravention against a corporation.
- The small business threshold expanded substantially in 2023 — a small business is now any party with fewer than 100 employees or annual turnover under $10m, and the transaction value cap on the small business contract was removed altogether.
- The regime only applies to standard form contracts — contracts prepared by one party and offered on a take-it-or-leave-it basis with no effective negotiation; a term becomes unfair where it causes a significant imbalance, is not reasonably necessary to protect a legitimate interest, and would cause detriment if relied on.
- Common unfair terms include unilateral variation clauses, unilateral termination rights, unlimited indemnities, automatic renewal without notice, disproportionate default fees, entire agreement clauses that exclude oral representations, and clauses that shift risk of the stronger party's negligence to the weaker party.
- Individual unfair terms can be declared void by the Court, and the whole contract may remain on foot without them — but a business that includes, applies or relies on an unfair term now faces separate civil penalty exposure, not merely the term being unenforceable.
- Every Australian business that uses standard terms with consumers or small business counterparties should complete a UCT audit — review contracts, remove or narrow risky clauses, add legitimate-purpose justifications where appropriate and update training and negotiation authority before ACCC / ASIC enforcement action arises.
For fifteen years the Australian unfair contract terms (UCT) regime was a legal-void backstop — an unfair term in a standard form consumer or small business contract could be declared void, but the business responsible faced no penalty. Since 9 November 2023 that has fundamentally changed. Including, applying or relying on an unfair term is now a civil-penalty contravention with an outer limit of $50 million per contravention for a corporation, and the ACCC and ASIC have made enforcement a priority.
This article explains the post-2023 regime, what the reforms actually changed, who is now covered, how to tell whether a term is unfair, and the practical contract-remediation project every business using standard form terms should now have completed. It is general information only and is not legal advice.
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:
- it would cause a significant imbalance in the parties' rights and obligations arising under the contract;
- it is not reasonably necessary to protect the legitimate interests of the party benefiting from it; and
- 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
For a corporation, civil penalties for including, applying or relying on an unfair term are the greater of: $50 million; three times the value of the benefit obtained from the contravention; or, if the benefit cannot be determined, 30% of adjusted turnover during the breach period. For an individual, up to $2.5 million.
Critically, the Court can now impose separate penalties for including the term, applying the term and relying on the term — each is a separate contravention. A single standard form contract used with hundreds of counterparts can therefore generate substantial penalty exposure even where the underlying financial detriment to any single counterparty is modest.
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:
- 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.
- Risk triage. Prioritise by volume of counterparties, sensitivity of the terms and counterparty risk.
- Clause review. Assess each hard-edge clause against the three-limb section 24 test — significant imbalance, reasonably necessary, detriment.
- Legitimate-interest documentation.Record the specific commercial purpose each remaining hard-edge clause protects.
- Balance and transparency. Add reciprocal rights, notice periods, cure periods and plain-English drafting.
- Roll-out. Update customer-facing collateral, quote packs and CRM contract templates so the remediated terms are actually the ones used.
- 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 has publicly identified unfair contract terms as a compliance and enforcement priority in every enforcement plan since 2023. Early Federal Court decisions have applied the new penalties to unilateral variation clauses, unlimited indemnities, automatic renewal without notice and 'evergreen' fee terms. 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.
Frequently Asked Questions
What changed on 9 November 2023?
The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) brought civil penalties into the unfair contract terms (UCT) regimes under the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) and the ASIC Act. For the first time, including, applying or relying on an unfair term in a standard form small business or consumer contract can attract a civil penalty of up to $50m per contravention for a corporation. The reforms also materially expanded the small business threshold and removed the transaction-value cap.
Who counts as a small business?
From 9 November 2023 a small business is any party that at the time of contract has fewer than 100 employees, or annual turnover in the previous income year of less than $10m. The pre-reform requirements (fewer than 20 employees and a transaction value cap of $300,000 / $1m over 12 months) no longer apply. This substantially widens the number of business-to-business contracts caught by the regime — most SME procurement, franchise, supply, distribution, IT services and finance agreements now sit 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 for the other party to negotiate the substantive terms. Courts 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 as they stood, and whether the other party had an effective opportunity to negotiate. A contract does not become non-standard merely because minor items (such as price, quantity or delivery date) were negotiated.
When is a term 'unfair'?
A term is unfair if it satisfies all three limbs of section 24 of the ACL (or the ASIC Act equivalent): it would cause a significant imbalance in the parties' rights and obligations; it is not reasonably necessary to protect a legitimate interest of the party benefiting from it; and it would cause detriment (financial or otherwise) if applied or relied on. The transparency of the term and the contract as a whole is also relevant. The party seeking to enforce the term bears the onus of proving it is reasonably necessary to protect a legitimate interest.
What are examples of terms likely to be unfair?
The ACL lists examples in section 25 that include: terms permitting one party (but not the other) to unilaterally vary the contract; unilateral termination rights; automatic renewal without notice; unlimited or disproportionate default fees; entire agreement clauses that exclude pre-contract representations; terms shifting the stronger party's negligence to the weaker party; broad indemnities; and terms that permit assignment to a third party without notice or consent. Regulator enforcement action since 2023 has focused particularly on unilateral variation, automatic renewal, unlimited indemnity and 'evergreen' clauses.
What penalties can the Court order?
For a corporation, the greater of: $50 million; three times the value of the benefit obtained from the contravention; or, if the benefit cannot be determined, 30% of adjusted turnover during the breach period. For an individual, up to $2.5 million. In addition to civil penalties the Court can declare terms void, injunct further use, order redress for affected consumers and small businesses, and order corrective advertising. The regulators (ACCC for the ACL, ASIC for the ASIC Act) have signalled that penalties will be sought as a matter of course in future UCT enforcement.
What terms are excluded from the regime?
The upfront price payable, terms that define the main subject matter of the contract, and terms required or expressly permitted by law are not assessed as unfair. Certain insurance contracts and shipping contracts have separate treatment. Employment contracts are outside the regime. The exclusions are narrow — the vast majority of clauses in a typical business-to-business standard form contract are within the assessment.
What should my business do now?
Complete a UCT audit of every standard form contract you use with a small business or consumer counterparty. Prioritise contracts with the highest volume (customer terms and conditions), the most sensitive terms (unilateral variation, indemnity, termination) and the highest counterparty risk (small business franchisees, contractors, tenants). Remove or narrow risky clauses, document the legitimate business interest that supports any remaining hard-edge terms, add balance where the counterparty currently has none, and update sales, procurement and legal training so the audited terms are actually used.
Does the regime apply to franchise agreements, retail leases and finance agreements?
Yes — where the counterparty is a small business (which most franchisees and retail tenants are) and the contract is a standard form. Franchise agreements are also separately regulated by the Franchising Code of Conduct (see our companion article). Retail leases are subject to the Retail Leases Act 2003 (Vic) in Victoria; the UCT regime applies alongside the Retail Leases Act, not instead of it. Finance agreements offered to small businesses have been a particular ASIC enforcement focus.
What is 'legitimate business interest' and how do I show it?
The party seeking to enforce a hard-edge term must be able to point to a specific commercial purpose the term protects — for example, a limited unilateral variation right restricted to genuinely necessary compliance or safety changes with reasonable notice; an indemnity confined to the counterparty's negligent or wilful acts; or a default fee that reasonably reflects the enforcement costs incurred. Documenting the interest at the time of drafting, and confining the term to that interest, materially reduces UCT exposure. Broad, blanket clauses without documented commercial purpose are the highest-risk category.
Commercial & Business Law
Standard terms carry real penalties now. Audit before the regulator does.
Parke Lawyers reviews and remediates standard form contracts against the post-2023 unfair contract terms regime — customer terms, supply, franchise, distribution, licensing, engagement letters and finance agreements.
This article is general information only and does not constitute legal advice. Please obtain advice tailored to your circumstances.