Unfair contract terms under the Australian Consumer Law
The unfair contract terms regime in the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth)) applies to standard-form consumer and small-business contracts. The November 2023 reforms made unfair terms a civil penalty contravention (up to $50 million for corporations) and significantly expanded small-business coverage. This guide walks through 10 core obligations.
Coverage
Every business that uses a standard-form contract with a consumer or a small business. The small-business threshold (fewer than 100 employees OR annual turnover under $10 million) captures most commercial counterparties. Financial services contracts are covered by the ASIC Act equivalent.
Legal basis
Australian Consumer Law (Schedule 2, Competition and Consumer Act 2010 (Cth)) sections 23-28. The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 strengthened the regime, effective 9 November 2023. Equivalent provisions for financial services are in ASIC Act 2001 (Cth) Part 2 Div 2 Subdiv BA.
The obligations
Identify whether a contract is standard-form
A contract is standard-form where one party prepared it and the other had no effective opportunity to negotiate. The expanded test after November 2023 includes repeated use and take-it-or-leave-it tone.
Apply the three-limb unfairness test
A term is unfair if it (a) causes a significant imbalance in rights and obligations, (b) is not reasonably necessary to protect the advantaged party's legitimate interests, and (c) would cause detriment if relied on.
Review transparency
A term's transparency (plain language, legibility, presentation, availability) is a relevant factor in the unfairness assessment. Terms buried in schedules or cross-references are a red flag.
Audit common problem terms
The regulators have identified problem categories: unilateral variation rights, automatic renewal without clear notice, limitation of liability that goes beyond statutory minimums, unilateral termination rights, broad indemnity clauses, and excessive penalty or liquidated damages terms.
Observe small-business thresholds
From 9 November 2023 a small business is one with fewer than 100 employees OR annual turnover under $10 million. The upfront price threshold was removed. Most commercial contracts with SME counterparties are now in scope.
Accept civil penalty exposure
Proposing, relying on, or applying an unfair term is a civil penalty contravention — up to $50 million, 3x benefit, or 30% of turnover (corporations). Each unfair term is a separate contravention.
Avoid main subject matter and price terms
The main subject matter of the contract and the upfront price payable are excluded from the unfairness assessment. However, renewal price mechanisms, hidden fees, and usage-based charges are not excluded.
Cure identified unfair terms across the portfolio
Where a term has been identified as unfair (by a court or regulator) the business must remove or amend it across every standard-form contract in which it appears, not just the specific contract in issue.
Maintain a standard-form contract review program
Regulators expect medium and large businesses to have a periodic standard-form contract review program, documented, with legal oversight, and covering amendments after regulator guidance is updated.
Observe the financial services equivalent
Contracts for financial products and services are covered by the ASIC Act 2001 (Cth) Part 2 Div 2 Subdiv BA, which mirrors the ACL regime. ASIC enforces the financial services UCT regime.
What happens if you do not comply
From 9 November 2023: civil penalties up to $50 million, 3x the benefit, or 30% of the adjusted turnover during the breach period (whichever is greatest) for corporations. Individuals face penalties up to $2.5 million. Each unfair term is a separate contravention — portfolio exposure can be substantial.
Reporting requirements
No periodic reporting. ACCC and ASIC enforcement actions are public. Businesses with unfair terms identified by regulators should expect follow-up compliance checks and may be required to accept court-enforceable undertakings.
What firms should do today
- Run a line-by-line review of every standard-form contract against the problem-term categories
- Redraft unilateral variation, automatic renewal, and broad indemnity clauses to be reasonable and transparent
- Rewrite contracts in plain English with a clear structure — transparency is a relevant factor
- Add a legal review gate before any change to the standard-form template
- Train sales and procurement staff on the small-business threshold so they know when UCT applies
- Track ACCC and ASIC enforcement actions and use them as a checklist against your own templates
Compliance with Quillio
Quillio reviews standard-form contracts against the unfair contract terms regime, flags high-risk clauses, and drafts compliant replacements in AU format. See /practice-areas/commercial-lawyers or start a free trial.
This guide is general information about the unfair contract terms regime — not legal advice. Unfairness is fact-specific and the November 2023 reforms have not yet been fully tested in the courts. Obtain specialist advice on any standard-form contract with material commercial risk.
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