Unfair Contract Terms: What Australian Small Businesses Need to Know

Key Takeaways

• Since 9 November 2023, unfair contract terms in standard form contracts are no longer merely voidable but are unlawful and attract significant civil penalties under the Treasury Laws Amendment (More Competition, Better Prices) Act 2022.
• There are two parallel regimes. The ACCC enforces the Australian Consumer Law for goods, services and land. ASIC enforces the ASIC Act for financial products and services such as loans, insurance and credit, where a $5 million upfront price cap also applies.
• The small business protections apply where at least one party has fewer than 100 employees or annual turnover below $10 million. There is no contract value cap under the ACL.
• Maximum ACL penalties for corporations are the greater of $100 million, three times the benefit obtained or 30% of adjusted turnover. Penalties were doubled from $50 million in March 2026.
• Each unfair term in each contract is a separate contravention, so a flawed template used across hundreds of customers multiplies the exposure.

1. 1.What Is an Unfair Contract Term?
2. 2.What Changed in November 2023?
3. 3.Two Regimes: The ACL and the ASIC Act
4. 4.What Is a Standard Form Contract?
5. 5.Examples of Potentially Unfair Terms
6. 6.How Courts Are Applying the Regime
7. 7.Regulator Enforcement Focus
8. 8.Practical Steps for Businesses
9. 9.Conclusion

Since 9 November 2023, unfair contract terms (UCTs) in standard form contracts with consumers and small businesses are no longer merely voidable - they are unlawful and attract significant civil penalties under the Australian Consumer Law (ACL). The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 fundamentally changed the UCT regime, and businesses that have not reviewed their standard form contracts are now exposed to substantial enforcement risk. At Astris Law, we advise businesses on ACL compliance, including reviewing and updating standard form contracts to meet the new requirements.

What Is an Unfair Contract Term?

Under section 24 of the ACL (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), a term in a standard form consumer or small business contract is unfair if:

• 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 who would benefit from the term
• It would cause detriment (whether financial or otherwise) to the other party if relied upon

The court must consider the term in the context of the contract as a whole and have regard to the transparency of the term. A term is transparent if it is expressed in reasonably plain language, legible, presented clearly and readily available to the party affected.

What Changed in November 2023?

Before the 2023 amendments, unfair contract terms could be declared void by a court, but there were no penalties for including them. This meant businesses had little incentive to proactively review and remove unfair terms - the worst outcome was the term being struck out.

The new regime changes this substantially:

• Penalties: Proposing, applying or relying on an unfair contract term now attracts civil penalties under the ACL. For a body corporate the maximum per contravention is the greater of $100 million (doubled from $50 million by amendments passed in March 2026, applying to conduct from 28 March 2026), three times the value of the benefit obtained or, if the benefit cannot be determined, 30% of adjusted turnover during the breach turnover period (minimum 12 months). For individuals the maximum is $2.5 million per contravention
• Expanded small business definition: The threshold for small business contracts has been raised - a contract is a "small business contract" if at least one party employs fewer than 100 persons or has turnover of less than $10 million in the previous income year
• No contract value cap: The previous $300,000 (or $1 million for contracts longer than 12 months) threshold for small business contracts has been removed entirely
• Standard form presumption: A contract is presumed to be a standard form contract unless the party that prepared it proves otherwise (s 27 of the ACL)
• Legitimate interests presumption: A term is presumed not to be reasonably necessary to protect the legitimate interests of the advantaged party unless that party proves otherwise (s 24(4) of the ACL)

The penalty settings are dangerous for template-heavy businesses because each unfair term in each contract is a separate contravention. A business using one template with three problem clauses across a thousand customers is not facing one contravention. It is facing thousands.

Two Regimes: The ACL and the ASIC Act

There are two parallel UCT regimes. They share the same unfairness test and the same standard form test but differ in coverage, thresholds, penalties and regulators. The ACL covers most commercial contracts and is enforced by the ACCC. The ASIC Act (Australian Securities and Investments Commission Act 2001 (Cth)) covers financial products and financial services and is enforced by ASIC.

	ACL (enforced by the ACCC)	ASIC Act (enforced by ASIC)
Statute	Sch 2, Competition and Consumer Act 2010 (Cth)	ASIC Act 2001 (Cth) ss 12BF-12BM
Covers	Goods, services, sale or grant of interests in land	Financial products and financial services (loans, guarantees, insurance, broking, credit)
Small business test	Fewer than 100 employees or turnover under $10 million (either party)	Same headcount and turnover test, plus the upfront price payable must not exceed $5 million
Contract value cap	None	$5 million upfront price (excluding interest)
Maximum corporate penalty	Greater of $100 million, three times the benefit or 30% of adjusted turnover	Greater of 50,000 penalty units (currently $16.5 million), three times the benefit derived and detriment avoided or 10% of annual turnover capped at 2.5 million penalty units

In practice, your supply agreement, lease or services contract is an ACL question for the ACCC. The business loan, equipment finance or insurance policy sitting next to it is an ASIC Act question for ASIC. A small business dealing with a lender needs to check the $5 million cap. One dealing with a supplier does not.

What Is a Standard Form Contract?

A standard form contract is one that has been prepared by one party and is offered to the other on a "take it or leave it" basis with little or no opportunity for negotiation. Under s 27 of the ACL, a contract is presumed to be a standard form contract unless the party who prepared it proves otherwise. Factors the court considers include:

• Whether one party had all or most of the bargaining power
• Whether the contract was prepared by one party before discussions
• Whether the other party was required to either accept or reject the terms (rather than negotiate)
• Whether the other party was given an effective opportunity to negotiate the terms
• Whether the terms take into account the specific characteristics of the other party or the particular transaction
• Whether the party has made other contracts in the same or substantially similar terms and, if so, how many - courts must now consider repeat usage

A contract can still be standard form even if the other party could negotiate minor or insubstantial changes or select from a menu of options set by the party that prepared it.

Examples of Potentially Unfair Terms

Section 25 of the ACL provides a non-exhaustive list of terms that may be unfair. Common examples include:

• Terms that permit one party (but not the other) to terminate the contract without cause
• Terms that allow one party to vary the terms, price or characteristics of the goods or services unilaterally
• Broad indemnity clauses that require one party to bear all risks regardless of fault
• Automatic renewal clauses that are not clearly disclosed
• Excessive termination fees or penalties
• Terms that limit one party's right to sue or restrict their available remedies
• Terms that assign intellectual property rights without adequate consideration

How Courts Are Applying the Regime

Early decisions show how the regime works in practice and where challenges fail.

DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120

A childcare business borrowed $2.4 million urgently from a private lender. When the deal fell over, the lender demanded more than $150,000 in fees under the offer document and DCZ argued the fee clauses were unfair under the ASIC Act, the loan being a financial product. The Queensland Supreme Court rejected the challenge on both limbs. Five negotiated versions of the offer had passed between the parties through DCZ's broker, so the contract was not a standard form contract. The fees were also reasonably necessary to protect the lender's legitimate interests, with no evidence they exceeded market rates for urgent short-term private lending.

The lessons: private parties can run UCT arguments themselves, not just regulators. Genuine negotiation defeats the regime, so keep records of negotiation. The party challenging a term needs evidence such as benchmarking, not just indignation at the number. And boilerplate clauses alone do not make a contract standard form.

ASIC v PayPal Australia Pty Limited [2024] FCA 762

The Federal Court declared a term in PayPal's standard business account contracts unfair. The term deemed fee statements accepted unless the business notified PayPal of errors within 60 days, and it appeared in around 600,000 small business contracts. PayPal consented to the declaration and the term was declared void from the start. No penalty was imposed because the contracts predated the penalty regime. The lesson: even transparent terms used by sophisticated businesses can be unfair if they are one-sided.

ASIC v Auto & General Insurance Company Ltd [2024] FCA 272

ASIC's first contested UCT case under the ASIC Act concerned a term in home and contents insurance policies requiring customers to notify the insurer "if anything changes". ASIC lost. The Court found the term was not unfair when read in the context of the policy as a whole, and the Full Federal Court dismissed ASIC's appeal in 2025. The lesson: the regime is not a rubber stamp for regulators. Context and the contract as a whole matter.

Regulator Enforcement Focus

The ACCC has identified UCT enforcement as a priority area. Since the new penalty regime commenced, the ACCC has publicly stated it is targeting industries where standard form contracts are prevalent, including insurance, telecommunications, franchising (see our guide to UCT in franchise agreements), agriculture and financial services. ASIC has flagged insurance and credit as its focus sectors under the ASIC Act limb of the regime. The March 2026 doubling of maximum penalties signals a tougher enforcement environment generally. Businesses in these sectors should treat contract review as urgent.

Practical Steps for Businesses

Businesses that use standard form contracts should take the following steps:

• Audit existing contracts: Review all standard form contracts used with consumers and small businesses to identify potentially unfair terms
• Assess bargaining dynamics: Consider whether your contracts are truly standard form - if they are offered on a take-it-or-leave-it basis, the UCT regime applies
• Remove or redraft unfair terms: Terms that create a significant imbalance should be removed or rebalanced. Consider whether one-sided termination, variation or liability clauses can be justified
• Improve transparency: Ensure key terms are expressed in plain language, are prominent and are not buried in fine print
• Train relevant staff: Sales and contract management teams should understand which terms are at risk and how to handle customer queries about contract fairness
• Monitor regulator guidance and court decisions: Court decisions on similar terms are persuasive and the regulators publicise them, so terms found unfair in one case create real risk for anyone using similar terms

Conclusion

The 2023 UCT amendments represent one of the most significant changes to Australian contract law in recent years, and the March 2026 doubling of maximum penalties has raised the stakes again. Businesses that continue to rely on unreformed standard form contracts face real enforcement risk and potential penalties of up to $100 million per contravention. Astris Law's regulatory and compliance team can review your standard form contracts, identify at-risk terms and implement changes to ensure compliance with the updated ACL and ASIC Act provisions.

This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of, or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.