- Who does what when a contract is made
- What makes a promise legally binding
- Do contracts need to be in writing?
- How a company executes a contract
- Changing, ending and enforcing an agreement
- Where contracts usually come unstuck
- When to have a lawyer look at your contract
- The contract you did not sign is the one that binds you
Most small businesses are in more contracts than they realise. Every quote accepted by email, every set of terms and conditions attached to an invoice, every supplier order form is potentially a legally binding agreement. The law that decides whether those promises hold up in court is largely the common law that has governed Australian commerce for generations, overlaid with consumer protections that have become considerably sharper in recent years.
This article walks through how a contract actually comes into existence in Australia, what it takes to make one binding, how companies properly execute them, the consumer law rules that override what you write, and how agreements are varied, terminated and enforced. The aim is practical: once you know where the law's triggers are, you know where your risk is.
Who does what when a contract is made
Three groups of actors shape how contract law works in practice, and each has a different interest in your agreement:
- The parties: Your business and the counterparty set the terms, carry them out and bear the consequences if things go wrong. Their interests usually align at signing and diverge when circumstances change.
- The court: If a dispute reaches litigation, a court decides whether a binding contract exists, what its terms mean and what remedy follows. It applies an objective test, asking what a reasonable person in the parties' position would have understood, rather than what each side privately intended.
- The regulators: The ACCC and ASIC enforce the consumer protection overlay, most notably the unfair contract terms regime. They do not investigate individual disputes, but they can seek declarations that a term is unfair and pursue penalties against businesses that use such terms.
What makes a promise legally binding
Australian law does not require a contract to be written, signed or stamped. It requires four elements, and they can all be supplied informally:
- Offer: A definite promise to be bound on stated terms.
- Acceptance: Unqualified agreement to those terms.
- Consideration: Something of value exchanged between the parties. A promise to make a gift is not enforceable, because nothing was given in return for it.
- Intention to create legal relations: The parties must intend their arrangement to be legally binding.
A fifth practical requirement is that the terms be certain enough to enforce. A court will not fill in a blank price or an undefined scope for you, though it may imply reasonable terms where the parties clearly intended to be bound.
The High Court settled how intention is assessed in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8. The Court held that intention is judged objectively from the surrounding circumstances, with no automatic presumption that particular kinds of arrangements are or are not intended to be binding. In that case, the contract of employment of an archbishop was enforceable even though the relationship was with a church community, where earlier authority had suggested such arrangements might not be contractual at all.
Because these elements can be satisfied without formalities, a contract can spring from an email exchange, a text message, a purchase order or a handshake. The flip side is that the same rules bind you when you did not think you were making a deal. If your emails contain a clear offer, unqualified acceptance and the essential terms, a court can hold that a contract exists even though nothing was signed.
Do contracts need to be in writing?
No. The common law enforces oral contracts, and the law is careful not to require formalities the parties did not use. The practical problem with verbal agreements is not validity but proof: when the parties disagree about what was promised, each side's recollection is the only evidence.
Electronic communications are treated the same way as paper. Section 8 of the Electronic Transactions Act 1999 (Cth) provides that a transaction is not invalid simply because it took place by means of one or more electronic communications, and s 10 allows a signature required under a Commonwealth law to be given electronically where the method used identifies the person and indicates their intention, with a reliability appropriate to the circumstances. State and territory equivalents apply the same approach to their own laws. An email signature, a tick box or an e-signature can each be effective in the right context.
A small number of categories do require writing to be enforceable, notably contracts for the sale of land and guarantees, under state-based legislation that varies around the country. If your deal falls into one of those categories, the writing requirement is not a formality you can ignore.
The label subject to contract has real work to do. Written on a draft or in an email, it signals that the parties are still negotiating and do not yet intend to be bound, so a court is far less likely to find that agreement was reached before the final document was signed. If you are still negotiating, use it. If you intend to be bound, stop using it.
How a company executes a contract
If a company is a party, who signs matters as much as what the document says. Under s 127 of the Corporations Act 2001 (Cth), a company executes a document without a common seal when it is signed by two directors, or by a director and a company secretary, or, in the case of a proprietary company with a sole director who is also the sole secretary (or where the company has no secretary), by that director.
The Act has kept pace with electronic practice. The requirement to sign can be satisfied electronically under the technology neutral signing provisions in Part 1.2AA, and s 127(3A) allows a company to execute a deed in accordance with s 127(1) without witnessing, regardless of whether the signed document is in physical or electronic form. Delivery of a deed is not required where a company executes under s 127.
Section 127 also protects the other side of the table. Under s 129, a person dealing with a company can rely on the assumption that the document was duly executed and that the signatories held their offices, so long as the document appears to have been executed in accordance with s 127. This is one of the reasons proper execution matters: it shifts the burden of proving validity away from you.
Execution does not always need to follow s 127. Under s 126, a company may execute documents through an agent acting under express or implied authority, which is how authorised officers, sales managers or external signatories commonly sign. If you are asked to accept a signature that does not follow s 127, it is reasonable to ask for evidence of the signatory's authority, such as a board resolution or a delegation, before you rely on it.
The practical rules are simple: know who is authorised to sign for your own company, check the same for the counterparty, and make sure the execution block matches the process actually used. An electronically signed contract is fine. An electronically signed contract from someone without authority is not.
Where the Australian Consumer Law overrides your terms
Freedom of contract in Australia stops at the Australian Consumer Law (the ACL), which is Schedule 2 to the Competition and Consumer Act 2010 (Cth). Three parts of it matter most when drafting or reviewing an agreement.
First, s 18 prohibits misleading or deceptive conduct in trade or commerce. A representation in your terms, your marketing or your negotiation can expose you to liability even if it is not a contractual promise.
Second, the consumer guarantees cannot be contracted out of. Section 64 of the ACL voids any term that purports to exclude, restrict or modify the application of the guarantees, which apply to goods and services supplied to consumers. Your warranties and disclaimers must sit alongside the guarantees, not try to override them.
Third, the unfair contract terms regime. Section 23 of the ACL provides that an unfair term in a standard form consumer contract or small business contract is void, while the rest of the contract continues to bind the parties if it can operate without the unfair term. Since 9 November 2023, following the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth), proposing an unfair term, or applying or relying on one, is itself a contravention that can attract a pecuniary penalty. The regime applies to contracts made on or after that date, and to existing contracts when they are renewed or varied after it.
Who is protected
The regime catches two kinds of contract. A consumer contract is one where an individual acquires goods, services or an interest in land wholly or predominantly for personal, domestic or household use. A small business contract, under s 23(4) of the ACL, is a contract for the supply of goods or services, or the sale or grant of an interest in land, where at least one party employs fewer than 100 people or had turnover below $10 million in its last income year. The 2022 amendments removed the earlier contract-value caps, so the test now turns on the size of the business rather than the size of the deal.
What makes a term unfair
Section 24 of the ACL defines a term as unfair when it causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment to the other party if it were applied or relied on. A term is presumed not to be reasonably necessary unless the advantaged party proves otherwise. Courts must also consider how transparent the term is, including whether it is expressed in reasonably plain language, legible, clearly presented and readily available.
Standard form contracts
Section 27 provides that a contract alleged to be standard form is presumed to be so unless proved otherwise. The court must consider whether one party had all or most of the bargaining power, whether the contract was prepared by one party before discussion occurred, and whether the other party was effectively required to accept or reject the terms in the form presented. Your standard terms and conditions, subscription agreement or take-it-or-leave-it customer contract will usually be treated as standard form.
The terms that attract the most scrutiny are one-sided levers: unilateral termination or variation rights, automatic renewal, unlimited indemnities, liability caps that gut the other side's remedies, and price changes without notice. Courts weigh these against the legitimate interests of the business using them.
The penalties
Since the 2022 amendments, courts can impose pecuniary penalties for proposing or relying on an unfair term. For a body corporate the maximum is the greater of $50 million, three times the value of the benefit obtained, or 30 per cent of adjusted turnover; for individuals the maximum is $2.5 million. Regulators can also seek declarations that a term is unfair, and orders preventing a substantially similar term from being included in future contracts.
Changing, ending and enforcing an agreement
Contracts are not static documents, and Australian law gives you room to change them, but the mechanics matter.
Variations require agreement between the parties, and at common law a variation needs fresh consideration unless it is made by deed. In practice, the cleanest way to change a contract is a written variation signed by both parties, either as a separate document or a formal amendment to the original. If your contract has a variation clause, follow its process: written request, confirmation of the impact on scope, price and timing, then approval. Keep a version history and a clean copy of the latest agreed terms, because when a dispute arises the parties will argue about which version of the contract applied.
Termination follows the terms of the contract first. Most well-drafted agreements include termination for convenience on notice, and termination for breach where the breach is serious or remains uncured after notice. At common law, a serious breach or repudiation can also justify termination. Whatever the trigger, plan the wind-down: final invoices, return or deletion of data, handover of deliverables on payment, and confirmation that ongoing obligations such as confidentiality survive the end of the contract.
Automatic renewal deserves special attention. A clause that silently renews a contract unless notice is given can lock a business into unfavourable terms for another year, and a renewal clause that lets one side renew while the other cannot exit can attract scrutiny under the unfair contract terms regime. Diarise the renewal window and the notice period, and check that the renewal clause is balanced.
If a dispute reaches court, the usual remedy for breach is damages designed to put the innocent party in the position they would have been in had the contract been performed. In limited cases the court may order specific performance or an injunction instead. The quality of your records, including signed agreements, change requests, invoices and delivery evidence, will largely determine how strong your position is.
Where contracts usually come unstuck
Most disputes trace back to a handful of recurring patterns:
- Email deals: Easy to form, hard to prove in full. If you regularly deal by email, pair a short-form master agreement with purchase orders or statements of work for each job, and label drafts subject to contract until the final document is signed.
- Verbal variations: A change discussed over the phone can later be relied on, but it is hard to prove. Confirm changes in writing even when the contract does not require it.
- Wrong signatories: A contract signed by someone without authority creates uncertainty that proper s 127 execution avoids. Check who is signing on the other side, and keep evidence of authority for your own signatories.
- Template mismatch: A template that does not match your operations, or that clashes with the ACL, is worse than no contract because it creates false confidence. Review standard terms through the unfair contract terms lens before you roll them out.
- Assuming signing is the moment of formation: If the essential terms were agreed by email earlier, the contract may already exist before the formal document is signed. The signed version then governs, but disputes can arise about which terms applied in the interim.
When to have a lawyer look at your contract
A well-run business does not need a lawyer for every invoice, but there are points where a review pays for itself. An Artificer Legal practitioner reviewing your standard terms would work through the unfair contract terms test clause by clause, checking termination, variation, renewal, indemnity and liability provisions against the ACL and its current thresholds, and would check that your execution processes actually satisfy s 127 of the Corporations Act 2001 (Cth). On a significant deal, we would negotiate the liability cap, the IP ownership and the termination rights before you sign, in the order that matters most to your exposure. If you are already in a dispute, the first question is usually whether a binding contract was formed at all, and that turns on the emails and records you kept.
The contract you did not sign is the one that binds you
The pattern in most disputes is the same. A business believes it has no contract because nothing formal was signed, or believes its standard terms protect it because someone once drafted them. Australian law does not work that way. The offer, acceptance and consideration in your email chain can create a binding contract, and since 9 November 2023 the unfair terms sitting in your standard form documents carry penalty exposure of up to $50 million. Both risks are manageable, and both are cheaper to address before a dispute than after one. A review of your standard terms and your signing processes, done now, is the difference between discovering a problem when a counterparty relies on it and discovering it on your own terms.
The practical position to remember: a contract exists when the four elements are present, not when you sign. Emails and e-signatures count. Companies must execute under s 127 of the Corporations Act 2001 (Cth) or through a person with proven authority. The ACL voids unfair terms and now penalises proposing them. Variations, renewals and termination need written discipline. If you are unsure whether an arrangement is binding, or whether your terms would survive scrutiny, an initial consultation with a commercial lawyer at Artificer Legal can map your exposure and tell you what to fix first.