Big Penalties for Unfair Contract Terms

Contracting with small businesses or consumers will become a risky business from 9 November 2023 as changes to the use of unfair contract terms come into effect (the Regime). Parties will be faced with significant repercussions for contracting with unfair terms in standard form contracts.

The Regime applies to both consumer contracts (i.e. contracts with individual consumers) and small business contracts (i.e. contracts wherein a ‘small business’ is a party), that are also ‘standard form contracts’.

Before the changes, if a contract contains an unfair term, the unfair term will be void and have no effect, and the contract would continue if it is capable of operating without that term. There is still some risk associated with contracting with unfair terms if one party were to seek legal remedies, but the risk will increase exponentially.

Under the new Regime, contracting with unfair terms (or proposing, applying, or relying on one) is illegal and gives rise to significant penalties. What’s more, is that each individual unfair term in a contract will be treated as a separate contravention. This means that there can be a number of contraventions under the one contract.

The Penalties

The penalty for a contravention under the new Regime is as follows:

  1. For individuals, up to 2.5 million dollars.
  2. For Corporations, up to the greater of:
    (a) 50 million dollars;
    (b) 3 times the values of the benefit from the unfair term; or
    (c) 30% adjusted turnover during the contravention turnover period.

Small Business

The protections will apply to standard form contracts where at least one party is a small business. What is considered to be a “small business” under the Regime will change significantly from the current interpretation. For the purposes of the Regime, a business will be deemed as a ‘small business’ if it has 100 or fewer employees or has an annual turnover of less than $10 million.

Standard Form

If the Court is presented with a contract, the Court starts with a presumption that it is ‘standard form’, unless it can be proven otherwise. A standard form contract is a contract that is pre-prepared and not made as a result of negotiations between the parties. Some examples of this might include circumstances where:

  1. the contract was pre-prepared before the parties entered into discussions;
  2. there is little or no room for one party to negotiate the terms of the contract;
  3. the same or a similar contract is used by one party repeatedly; or
  4. the contract is offered on ‘take it or leave it’ basis.

Even if there is an opportunity for parties to negotiate changes, if those changes are minor or inconsequential, the contract can still be deemed as standard form. Depending on the circumstances of each individual case, allowing a party to choose from a number of options within a contract may also not be sufficient to rebut the presumption that that contract is standard form.

What is an Unfair Term?

There are already existing laws setting out what type of terms are considered to be ‘unfair’. These laws will continue to be applied under the Regime. A contract term is deemed to be unfair if it:

  1. causes a significant imbalance of rights and obligations; and
  2. is not reasonably necessary to protect legitimate interests; and
  3. would cause financial or other detriment to a party if it were to be applied or relied on.

Some examples of unfair contract terms include terms that:

  1. give one party significantly more control than the other party;
  2. allow for one party to terminate in a much broader range of circumstances;
  3. allow for one party to vary the price payable without the other party having right to terminate;
  4. has broad indemnities favouring only one party;
  5. allow for one party to vary the contract without agreement from the other party;
  6. allow for one party to assign contract without consent, to detriment of the other party; or
  7. give one party significantly more rights or obligations than the other.

The transparency of the contract term is one of the many things that the Court will consider in determining unfairness, however, just because a contract term is transparent does not mean that is it fair. A term is transparent if it is in plain language, legible, presented clearly and readily available (for example, if a contract refers to another document, that document must be made readily available to the party contracting).

Will existing contracts be captured under the Regime?

The changes will apply to all new, renewed and varied contracts after 9 November 2023. Terms that are varied or added to existing contracts will also be captured under the Regime.
The changes under the new Regime will:

  1. increase the scope of what is considered a ‘small business’;
  2. broaden the range of contracts that may be considered ‘standard form contracts’; and
  3. increase penalties for using, applying or relying on unfair term.

Reasonably Necessary

It is important that standard contract terms are reasonably necessary to be included in order to protect the legitimate interests of the party who would be advantaged by the term. There is a legal presumption that a contract term is not reasonably necessary. This means that if you found yourself before the Court for a contravention of the Regime, you would need to prove that the alleged unfair term was, in fact, reasonably necessary to protect your legitimate interests.

In order to protect clients from falling foul of the Regime, Lawyers are going to need to double down with querying clients as to why they want or need particular terms to be included in their contracts.


Moving forward, the increased risk of not engaging lawyers to draft new contracts or contractual variations is obvious. Similarly, it is important that all businesses have their contracts reviewed for any terms that may be deemed unfair, and that those terms be removed or amended.

Whilst some businesses will benefit from the protections under this Regime, others are faced with the massive obligations that come with reviewing contracts to ensure compliance.

If you are not sure whether your contracts are ‘standard form’, or whether your contracts contain unfair terms, don’t risk it – contact us today to arrange a review of your contracts.


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