Since 9 November 2023 it has been unlawful in Australia to put an unfair term into a standard form contract, or to apply or rely on one. Before that date the consequence of an unfair term was gentler: a court could declare the term void, but nothing more. The reforms made by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) turned the unfair contract terms regime into a civil penalty regime, and they apply to businesses of every size, including startups and scaleups.
The regime protects a party who signs a take-it-or-leave-it contract containing a one-sided term. For a founder it cuts both ways. Your startup is protected as a small business when a larger supplier, landlord, lender, or customer hands you their standard form terms. At the same time, if you use your own standard form customer, supplier, or investor-facing contracts, you are the party who must not propose an unfair term. This article walks through how the regime actually works: who it protects, what makes a term unfair, how a contract comes to be treated as standard form, what changed in November 2023, and where startups most often trip over it.
Two regimes, one set of rules
The unfair contract terms provisions appear in two pieces of legislation, and which one applies to you depends on what you supply.
The core rules sit in Part 2-3 of the Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the CCA). The ACL covers consumer and small business contracts for goods, services, and interests in land. Its mirror is Subdivision BA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), which covers financial products and financial services: loans, credit, insurance, payment products, and financial advice.
The two regimes use the same concepts and, since the 2023 reforms, almost identical wording. The practical difference is enforcement. The ACCC and state and territory consumer regulators enforce the ACL, while ASIC enforces its own Act. That matters if your startup sells financial products or services, such as a buy now pay later product, a lending product, or a financial advice offering, because ASIC is the regulator you will deal with.
Who the regime protects
The regime applies to two categories of contract:
- Consumer contracts: A contract for the supply of goods or services, or the sale or grant of an interest in land, to an individual whose acquisition is wholly or predominantly for personal, domestic, or household use (s 23(3) of the ACL). The classic example is the terms you click through when buying software, insurance, or a gym membership.
- Small business contracts: A contract where at least one party is a business that employs fewer than 100 people or had a turnover of less than $10 million in its last income year (s 23(4) of the ACL). The two tests are alternatives: a business with 60 employees and $40 million in turnover still qualifies, and so does a two-person business turning over $8 million.
A few details of the definitions matter in practice:
- Counting employees: a casual employee counts only if employed on a regular and systematic basis, and a part-time employee counts as a fraction of a full-time equivalent (s 23(5)).
- Turnover: the value of the party's supplies, broadly aligned with its GST-taxable supplies (s 23(6)).
- No dollar cap under the ACL: the old thresholds, $300,000 or $1 million for contracts running more than 12 months, were removed in 2023.
- A cap remains under the ASIC Act: the upfront price payable must not exceed $5 million, with interest on a credit contract disregarded when working it out (s 12BF(4) to (5)).
The practical consequence for startups is that far more of your contracting sits inside the regime than before the reforms. The employee threshold jumped from fewer than 20 to fewer than 100, and the value cap disappeared. That applies in both directions: when you are the protected small business dealing with a larger counterparty, and when your counterparty is the small business dealing with you.
What makes a term unfair
A term is unfair if all three limbs of the test in s 24 of the ACL are met:
- it would cause a significant imbalance in the parties' rights and obligations under the contract;
- it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
- it would cause detriment, financial or otherwise, to the other party if it were applied or relied on.
The second limb carries a presumption that does a lot of work. A term is presumed not to be reasonably necessary to protect the advantaged party's legitimate interests unless that party proves otherwise (s 24(4)). In practice, the business that drafted the term carries the burden of justifying it.
In deciding whether a term is unfair, a court must consider two things (s 24(2)): how transparent the term is, and the contract as a whole. A term is transparent if it is expressed in reasonably plain language, legible, presented clearly, and readily available to the affected party (s 24(3)). Transparency helps but is not a defence: a clearly written one-sided term can still be unfair.
Some terms sit outside the fairness test altogether: terms that set the upfront price, terms that define the main subject matter of the contract, and terms required or permitted by another law. Everything else in the contract is assessable.
The kinds of terms courts and regulators flag most often include unilateral price or fee variation without any exit right, automatic renewal, one-sided termination, broad indemnities, exclusivity obligations, and penalty-style charges. The balancing point is important. The ACCC gives a clean example: a term letting a broadband provider change its price at any time is likely unfair if the customer cannot leave without penalty, but the same term is likely fine if customers who disagree with a price increase can end the contract free of charge. A one-sided term can survive if the contract gives the other side a genuine way out when the term bites.
The standard form contract gateway
The regime only reaches standard form contracts. A standard form contract is a pre-written contract offered on a take-it-or-leave-it basis: the other party can accept or reject it, but cannot meaningfully change it.
There is a presumption that helps challengers. If a party alleges a contract is standard form, it is presumed to be unless another party proves otherwise (s 27(1)). The burden of showing a contract is not standard form therefore lands on the party that prepared it.
In deciding the question, a court must consider the factors in s 27(2) of the ACL: whether one party has all or most of the bargaining power; whether the contract was prepared by one party before any discussion occurred; whether the other party was in effect required to accept or reject the terms as presented; whether the other party was given an effective opportunity to negotiate; and whether the terms were tailored to the other party's specific characteristics.
The 2023 reforms sharpened this gateway in two ways. First, the court must now take into account repeat usage: how many other contracts, in the same or substantially similar terms and prepared by the same party, have been made (s 27(2)(ba)). Second, s 27(3) makes clear that a contract can still be standard form even if the other party had an opportunity to negotiate changes that were minor or insubstantial in effect, could select a term from a range of options set by the other party, or could negotiate the terms of a separate contract. Negotiating a small discount, a longer notice period, or a separate side agreement will not, by itself, take your template outside the regime.
For startups this gateway covers most everyday contracting: clickwrap software terms, online sign-up flows, standard purchase orders, and the terms that sit behind an invoice are all classic standard form contracts.
What changed on 9 November 2023
Under the old law an unfair term was void, but using one attracted no penalty. The reforms added prohibitions and penalties that changed the risk profile of every standard form template:
- making a standard form consumer or small business contract that contains an unfair term you proposed is a contravention (s 23(2A) of the ACL);
- applying, relying on, or purporting to apply or rely on an unfair term is a contravention (s 23(2C));
- each unfair term you propose is a separate contravention (s 23(2B)), so a single template with four bad clauses is four contraventions.
The penalties are set out in s 224 of the ACL. For a body corporate the maximum is the greater of $100 million, three times the value of the benefit obtained, or 30 per cent of adjusted turnover during the breach period. For an individual the maximum is $2.5 million per contravention. The ASIC Act mirrors the prohibitions and its unfair contract terms provisions are civil penalty provisions, so the same exposure exists for financial products and services.
The changes apply to standard form contracts made or renewed on or after 9 November 2023, and to terms varied or added on or after that date. A contract entered before that date stays under the old rules only until it is renewed or varied. Because automatic renewal is common in subscription and SaaS terms, the silent renewal that happens without anyone reading the contract can be the event that brings an old template under the new penalties.
The reforms also expanded what a court can do. Beyond declaring a term unfair, a court can now order a party to redress loss or damage caused by an unfair term and to stop similar terms being included in future contracts, on the application of a regulator even where the affected people are not parties to the proceeding (ss 243A and 243B of the ACL).
What happens when a court finds a term unfair
Only a court can decide that a term is unfair. Regulators do not impose penalties directly; they take the matter to court and ask for the remedies.
The usual sequence is: a party to the contract or a regulator applies for a declaration that a term is unfair (s 250 of the ACL); if the declaration is made, the term is void (s 23(1)); and the contract continues to bind the parties if it is capable of operating without the term (s 23(2)). The court can then add injunctions, pecuniary penalties, corrective notices, and compliance program orders.
The leading illustration of how this plays out in practice is Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224. JJ Richards ran a waste management business built on around 26,000 standard form contracts with customers, including small businesses. The Federal Court declared eight categories of terms unfair: automatic renewal, price variation, agreed times, no credit without notification, exclusivity, credit terms, an indemnity, and termination. JJ Richards was restrained from relying on the terms, barred for five years from entering new standard form small business contracts containing them, ordered to publish a corrective notice, and required to run a compliance program. That case was decided under the old law, so the terms were void but no penalty followed. The same conduct today would also attract penalties, with each proposed unfair term counted separately.
Where startups get caught
Startups sit on both sides of this regime, and the traps differ.
As the protected party, your leverage is real. Standard form terms from a larger counterparty, such as a bank's lending terms, a landlord's lease, a platform's terms of service, or a supplier's credit terms, can contain unfair terms. You can ask for those to be reviewed before signing, and if a dispute later turns on one, a court can strike it out.
As the party issuing standard form terms, the common traps in startup templates are:
- Automatic renewal: a clause that silently renews the contract for another term, with a short or non-existent exit window.
- Unilateral variation: a right for you to change price, fees, or features without a matching right for the customer to cancel.
- One-sided termination: termination for convenience available to you but not the customer.
- Broad indemnities: indemnities that go beyond what is reasonably necessary to protect your legitimate interests.
- One-way risk shifting: limitation of liability clauses that push all risk onto the customer.
- Penalty-style charges: late fees or non-refundable deposits that go beyond a genuine pre-estimate of loss.
Remember the balancing point: many of these clauses survive if the contract gives the other party a genuine right to exit without penalty when the clause bites. Adding a mutual termination right, or a customer exit right on a price change, is often the cheapest fix in a template review.
A final trap is assuming grandfathering will protect you. Old contracts are only sheltered until the first renewal or variation after 9 November 2023. Treat every renewal notice, every automatic renewal, and every template change as a trigger to check the contract against the current rules.
When a lawyer helps
A commercial lawyer's role in this area is mostly preventive. The standard engagement is a template audit: identifying which of your standard form contracts fall within the regime, then reviewing each clause against the s 24 test and the factors in s 27. The drafting work that follows usually involves adding mutual termination rights, building in customer exit rights on price changes, narrowing indemnities so they are reasonably necessary, and rewriting terms in plain language so they are transparent.
A lawyer also helps with the judgment calls that templates do not answer on their own: whether tailoring a particular contract takes it outside standard form territory (often it does not, given s 27(3)), whether a term can be justified as reasonably necessary, and how to respond if a counterparty challenges a term or a regulator starts asking questions.
The cost of an unexamined template
The risk in this area concentrates in one place: the template that is used with every customer, renewed by silence, and never reviewed. Because each proposed unfair term is a separate contravention and each contravention carries penalties, a single stale template can multiply exposure across your whole customer base. The counterweight is that a scoped template review is a defined piece of work, not an open-ended project, and a first consultation is usually enough to tell you whether your contracts are in the risk zone or not. Given what the regime now costs to get wrong, the review is the cheap side of the equation.