If your business uses website terms, order forms, onboarding packs or template service agreements, you are dealing with the unfair contract terms regime whether you know it or not. The regime sits in Part 2-3 of the Australian Consumer Law (the ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), with mirror provisions in the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) for financial products and services. It exists because standard form contracts are usually written by one side for its own benefit, and the other side rarely reads or negotiates them.
Since 9 November 2023 the regime has had real teeth. Proposing, applying or relying on an unfair term in a standard form contract is now itself unlawful, not just a reason for the term to be struck out, and penalties can reach the greater of $100 million, three times the benefit obtained, or 30% of adjusted turnover for a company. This guide walks through how the whole mechanism works end to end: who enforces it, which contracts it covers, what makes a term unfair, what happens when one is found, and where the traps sit in practice.
The players: who enforces and who decides
Four sets of actors drive the regime and its outcomes:
- The ACCC: Enforces the unfair contract terms provisions of the ACL for most industries. It investigates complaints, runs test cases, and since 2023 can seek penalties.
- ASIC: Plays the same role for financial products and services, such as loans, insurance, payment accounts and buy now pay later arrangements, under the ASIC Act provisions.
- The Federal Court: Declares whether a term is unfair, makes orders preventing its future use, awards penalties and can order redress for affected customers.
- Your business and your counterparty: You are either the party whose template is under scrutiny or the small business or consumer on the receiving end. The regime protects the weaker party, but it constrains both sides of the deal.
Both regulators have made enforcement of unfair terms a stated priority, so the practical risk is not theoretical. It is worth knowing how the switch turns on.
The switch: which contracts the regime covers
A term is only caught if it sits in a standard form contract and that contract is either a consumer contract or a small business contract. Both limbs matter.
Standard form contracts
A contract is presumed to be standard form if a party to a proceeding alleges it is, unless the other side proves otherwise. In deciding the question, the court must look at whether one party holds all or most of the bargaining power, whether the contract was prepared before any real discussion, whether the other party was effectively required to take it or leave it, whether there was a genuine opportunity to negotiate, and whether the terms reflect the specific characteristics of the other party. Minor concessions do not save a contract from being standard form: an opportunity to negotiate small changes, or to pick from a menu of options set by the other side, is not enough. Website terms, app sign-ups, order forms, terms of trade and template service agreements are the classic examples.
Consumer contracts
A consumer contract is one for the supply of goods or services, or an interest in land, to an individual acquiring it wholly or predominantly for personal, domestic or household use. This has been protected since the ACL commenced in 2011.
Small business contracts
A contract is a small business contract if at least one party makes it in the course of carrying on a business and either employs fewer than 100 people or had turnover of less than $10 million for its last income year. The small business protections began on 12 November 2016, when the test was stricter: fewer than 20 employees and an upfront price capped at $300,000 (or $1 million for contracts running more than 12 months). The 9 November 2023 reforms removed the price caps entirely and replaced the headcount test with the current fewer than 100 employees or under $10 million turnover. Casual employees count only if employed on a regular and systematic basis, and part-timers count as a fraction of a full-time equivalent.
The practical consequence: many business to business agreements that once fell outside the regime are now inside it. If you contract with sole traders, partnerships or companies of modest size, you should assume the regime may apply to your templates.
Excluded contracts
A few contracts are outside the regime altogether: marine salvage or towage, charterparties, contracts for the carriage of goods by ship, company constitutions, and contracts governing payment or settlement systems approved under s 9 of the Payment Systems and Netting Act 1998 (Cth).
The test: what makes a term unfair
A term of a consumer or small business standard form contract is unfair if three things are all true. The test is in s 24 of the ACL:
- The term 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 who benefits from it.
- It would cause detriment, financial or otherwise, to the other party if it were applied or relied on.
The second limb carries a reversal of proof. A term is presumed not to be reasonably necessary unless the party who benefits from it proves otherwise. That shifts the burden onto the drafting party in practice, so a clause that exists purely for the drafter's convenience starts from a weak position.
In applying the test, the court must also consider the extent to which the term is transparent 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. A clear, well-signposted clause buried in plain sight is harder to attack than the same protection hidden in a dense block of text, although transparency alone never saves a term that fails the three limbs.
A worked example shows how the mechanism operates. A supplier's terms say it may increase prices or change the service at any time with immediate effect, while the customer has no right to terminate if the change is significant. The imbalance is obvious, the variation right is hard to justify as reasonably necessary to protect the supplier's interests, and a customer locked into a price rise would suffer detriment. That was close to the situation in ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, discussed below.
What the carve-outs protect
Not every term of a caught contract can be challenged. The unfair terms provisions do not apply to a term to the extent that it defines the main subject matter of the contract, sets the upfront price payable, or is required or expressly permitted by a law of the Commonwealth, a State or a Territory.
The upfront price carve-out is narrower than it sounds. The upfront price is the consideration disclosed at or before entry into the contract, and it excludes anything contingent on a future event. A "set up fee of $500 plus $20 per late payment" is disclosed and protected as to the fee, but the late payment component is contingent and can be attacked. Similarly, terms incorporated by operation of law, such as implied terms a statute requires to be included, are protected.
What happens when a term is unfair
The consequence of a finding of unfairness has two layers since the 2023 reforms.
The term is void
Under s 23 of the ACL, an unfair term of a standard form consumer or small business contract is void, but the contract continues to bind the parties if it is capable of operating without the term. In other words, the offending clause is excised and the rest of the deal usually survives. A party cannot simply walk away from the whole contract because one term is unfair, unless the term is so central that the contract cannot function without it.
Using it is now unlawful
Since 9 November 2023, making a standard form contract that contains an unfair term you proposed is a contravention, and so is applying or relying on an unfair term. Each unfair term proposed is a separate contravention, which matters enormously for template users: a single template with three unfair terms rolled out to 1,000 customers is not one problem, it is 3,000 potential contraventions.
Penalties
The penalty provision in s 224 of the ACL applies to these contraventions. For a body corporate the maximum is the greater of $100 million, three times the value of the benefit obtained that is reasonably attributable to the contravention, or 30% of adjusted turnover during the breach period. For an individual the maximum is $2.5 million.
Regulator remedies
Beyond penalties, the court can declare a term unfair, grant injunctions, order a business not to use the same or substantially similar terms in future contracts, and make orders to redress loss or damage suffered by customers, including by voiding or varying contracts. ASIC and the ACCC can also seek orders on behalf of affected parties.
The enforcement record shows how this plays out. In ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, the first court action under the small business regime, the Federal Court declared eight terms in the waste company's standard form contracts void, including automatic renewal, unilateral price variation, broad indemnities, one-sided termination and an exclusivity clause. The company had around 26,000 standard form contracts in place. In ASIC v Bendigo and Adelaide Bank Ltd [2020] FCA 716, the court declared several terms in six standard form small business loan and overdraft contracts unfair. More recently, in ASIC v PayPal Australia Pty Ltd [2024] FCA 762, the court declared unfair a PayPal term that let it keep erroneously charged fees if the small business did not dispute them within 60 days. Those cases predate or fall outside the penalty regime, but they show the clause types regulators pursue and the scale at which a standard form book can be examined.
Where the traps sit in practice
Renewals and variations
The 2023 changes apply to contracts made on or after 9 November 2023, but an existing contract renewed after that date is caught as renewed, and a term added or varied after that date is caught as varied. A template last reviewed in 2020 is not safe just because the signature is old.
Template reuse
The same standard form presented to many customers multiplies both the risk and the potential penalty exposure, because each unfair term in each contract can be a separate contravention. The JJ Richards case, with its 26,000 contracts, is the cautionary tale.
High-risk clauses
The clauses regulators and courts most often target are:
- Unilateral variation and termination: One side can change terms, prices or scope at will, or terminate for convenience, while the other side has no equivalent right or only a narrow right to exit.
- Broad indemnities: The customer indemnifies the supplier for losses the supplier causes, or for matters beyond the customer's control, with no fault requirement and no time limit.
- Punitive fees and deposits: Liquidated damages or cancellation fees out of proportion to any genuine loss, and strict no refunds terms.
- Automatic renewal: Contracts that roll over silently with a short cancellation window and no reminder.
- Absolute set-off bans: A clause that forbids the customer from setting off amounts the supplier clearly owes, in all circumstances.
- Assignment and control: The supplier can assign the contract freely while the customer is locked in, or the supplier unilaterally decides whether the contract has been breached.
A related trap: a term that tries to exclude, restrict or modify the ACL consumer guarantees is void under s 64 of the ACL regardless of the unfair terms regime. Blanket "no refunds, ever" wording is therefore doubly exposed: it fails the fairness test and it fails the guarantees.
Making your contracts safe, and when to get help
Compliance is a design problem, not a rewrite of your whole commercial model. A practical sequence:
- Audit your standard form documents: List every template you present on a take it or leave it basis, including renewals and auto-renewal letters. Prioritise anything used at scale or with customers.
- Test each high-risk clause against the three limbs: Ask whether each right or restriction is reasonably necessary to protect a real interest, and whether the other side has a proportionate escape hatch.
- Add transparency and escape hatches: Give reasonable notice of price and term changes, allow termination for material changes, signpost key risks in plain English and avoid burying them.
- Balance the remedies: Scale liability caps and liquidated damages to price, scope and foreseeable loss, preserve mandatory consumer rights, and keep indemnities limited to what the other party can control or cause.
- Fix the process: Make full terms available before sign-up, require active acceptance, send renewal reminders well ahead of rollover, and keep records of when terms were provided, accepted and varied.
This is also the point where a commercial lawyer earns their fee. A focused review of your templates against the current provisions, with redrafts of the clauses that fail the test, is fast work for a practitioner and slow, risky work for a business. If you have been handed a counterparty's template, the same analysis applies in reverse: identify the clauses you should push back on, ask for a small business version of the terms where one exists, and document any promised variations in writing. If you receive a regulator inquiry about your terms, stop using the template and get advice before responding.
The cost of leaving a 2022 template in place
The single most expensive mistake in this area is doing nothing. The regime switched from "the term is void if challenged" to "proposing, applying or relying on the term is a separate contravention carrying penalties up to $100 million" on 9 November 2023, and the expanded small business definition swept in thousands of business to business agreements that were previously out of scope. Every template still in circulation from before that date, and every renewal that has rolled over since, is a live exposure. The fix is not expensive relative to the risk: a clause-level audit of the templates you actually use, a redraft of the handful that fail the test, and a process that reviews terms whenever you change pricing, scope or product. Getting that done now, before a dispute or a regulator takes an interest, is the difference between a compliance exercise and a penalty proceeding.