Which small business contracts are covered by the Unfair Contract Terms provisions?
The Unfair Contract Terms provisions can apply to a standard form small business contract where the contract is for the supply of goods or services, or the sale or grant of an interest in land, and at least one party satisfies the statutory small business threshold.
The threshold reaches well beyond micro businesses. A commercially substantial contract can still be covered where one party satisfies either limb of the test, including a Contractor, Subcontractor, consultant, supplier or project-specific entity. (Source)
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Is the contract a "standard form contract"?
The Australian Consumer Law presumes that a contract is a "standard form contract" unless the party arguing otherwise proves that it is not. A court must consider matters including bargaining power, whether the contract was prepared before discussions with the Counterparty, whether it was effectively presented on an accept-or-reject basis and whether the Counterparty had an effective opportunity to negotiate.
Repeated use is relevant as well. The court must consider whether the Proposing Party has previously used the same or a substantially similar contract and how often it has done so. (Source)
What does not necessarily stop a contract being standard form?
- Negotiating minor or insubstantial changes.
- Choosing between options set by the Proposing Party.
- Negotiating another contract with the same party.
When is a contract term "unfair" under the Australian Consumer Law?
Section 24 of the Australian Consumer Law contains three cumulative requirements. The court must also consider transparency and the contract as a whole.
Significant imbalance
The term would cause a significant imbalance in the parties' rights and obligations arising under the contract.
Legitimate interests
The term is not reasonably necessary to protect the legitimate interests of the party advantaged by it. The term is presumed not to be reasonably necessary unless that party proves otherwise.
Detriment
The term would cause financial or other detriment if it were applied or relied on.
A term is transparent where it is expressed in reasonably plain language, legible, clearly presented and readily available to a party affected by it. (Source)
Who decides whether a contract term is "unfair"?
A Commercial Lawyer or Construction Lawyer can advise that a provision is likely to be "unfair" and use that advice when negotiating amendments, reviewing standard contracts or responding when another party seeks to enforce the clause. The parties can agree to amend or remove the term without court proceedings.
If the parties disagree, a Lawyer's opinion does not itself make the term void. Only a court can finally determine that a disputed term is "unfair" under the Australian Consumer Law. (Source)
Having the draft contract reviewed can help during negotiations
A focused Unfair Contract Terms Review can identify clauses that warrant challenge before signature, explain the basis for raising them and recommend amendments that can be put into the negotiation.
If you want the wider legal and commercial risk allocation reviewed as well, a complete Commercial Contract Review or Construction Contract Review is the more appropriate service.
Can the Proposing Party explain why the clause is needed?
When a contract gives the Proposing Party a substantial unilateral right, one of the first questions is what legitimate commercial interest that right is intended to protect. The breadth of the drafting then needs to be compared with that interest.
- What right or obligation does the clause create?
- Which party benefits from that right?
- What legitimate commercial interest does the clause protect?
- How broad is the drafting compared with that interest?
- What detriment could arise if the clause is applied or relied on?
- What qualifications, safeguards or counterbalancing rights appear elsewhere in the contract?
A provision that has survived through successive contract versions without anyone now being able to explain its commercial purpose warrants closer review. The appropriate response may not be to delete it. A skilled Lawyer needs to review the clause, its purpose and the contract as a whole to identify whether it contravenes the Unfair Contract Terms provisions and what drafting is appropriate if it does.
Which contract terms are more likely to be "unfair"?
Section 25 of the Australian Consumer Law identifies examples of terms that may be "unfair". It does not declare every clause in those categories to be "unfair". The section 24 requirements still need to be applied to the actual drafting and the contract as a whole. (Source)
Termination
One party can terminate in circumstances where the Counterparty has no equivalent or adequate protection.
Early Termination Fees
A fee or other detriment is imposed on one party for breach or termination.
Unilateral variation
The Proposing Party can change the contract, price or characteristics of the goods or services without a corresponding right for the Counterparty.
Unilateral decision-making
One party can determine whether the contract has been breached or how it should be interpreted.
Assignment
The contract can be assigned to the Counterparty's detriment without consent.
Enforcement rights
The clause limits the Counterparty's right to sue, evidence or evidential position.
Are limitations of liability and consequential loss exclusions "unfair"?
A limitation of liability is not inherently "unfair". Neither is a consequential loss exclusion. The legal analysis needs to identify the liability being limited, the commercial exposure the provision addresses, how broadly it operates and what detriment it could cause the Counterparty.
Indemnities require the same contextual approach. An indemnity may allocate an identified commercial risk appropriately, while another provision may transfer liabilities substantially beyond risks created or controlled by the party giving the indemnity.
Industry practice can be relevant
Industry practice can form part of the factual and commercial context considered when assessing legitimate interests and whether a particular protection goes further than reasonably necessary.
It does not determine whether the clause is "unfair" by itself.
Can Early Termination Fees be "unfair" Contract Terms?
An Early Termination Fee can raise an Unfair Contract Terms issue where it penalises one party for breach or termination and the provision satisfies the requirements in section 24 of the Australian Consumer Law. Section 25 specifically identifies a term that penalises one party, but not another, for breach or termination as a type of term that may be "unfair". (Source)
A termination charge can also raise legal issues outside the Unfair Contract Terms regime. Depending on the drafting and the obligation that triggers payment, the common law and equitable doctrine of penalties may need to be considered. Other Australian Consumer Law provisions can also be relevant where the party seeking payment represents that it has a contractual entitlement that the contract or applicable law does not support.
A termination fee is not automatically "unfair"
The amount, trigger, commercial interest being protected and practical effect all need to be examined before a conclusion can be reached.
Which contract terms are excluded from the Unfair Contract Terms provisions?
Section 26 of the Australian Consumer Law provides that section 23 does not apply to a term to the extent that it defines the main subject matter of the contract, sets the upfront price payable under the contract, or is required or expressly permitted by Commonwealth, State or Territory law.
Part 2-3 also contains exclusions for particular categories of contracts in sections 28 and 28A. Establishing that the contract and the clause fall within the regime should occur before deciding whether the term satisfies section 24. (Source)
The upfront price exclusion has limits
A contingent charge is not necessarily outside the Unfair Contract Terms regime simply because the contract calls it a fee or price. The statutory definition and the operation of the payment provision need to be checked.
What happens if a contract contains an "unfair" term?
If a court determines that a term is "unfair" and the contract is a standard form consumer or small business contract, section 23 of the Australian Consumer Law makes that term void. The rest of the contract continues if it can operate without the void term. (Source)
The term is void
The "unfair" term cannot be enforced once the statutory requirements are established.
The contract may continue
The balance of the contract continues if it is capable of operating without the void term.
The Proposing Party can face penalties
Proposing, applying or relying on an "unfair" term can amount to a contravention of the Australian Consumer Law.
Unfair Contract Terms in commercial contracts
Commercial contracts often develop over time. Terms are added after a difficult transaction, a customer dispute or a change in the organisation's risk position, and the combined effect of those provisions is not always reviewed when the document becomes the standard form used across the business.
A termination right can operate differently when the same contract also contains automatic renewal, substantial non-refundable charges and a unilateral variation provision. A liability limitation may look heavily one-sided in isolation but have a legitimate commercial basis arising from the services, insurance position, price or another part of the agreement.
If you want the whole agreement reviewed before signing, our Commercial Contract Review services cover the wider legal and commercial risk in the contract. The focused Unfair Contract Terms Review offered on this page is narrower and is dedicated to identifying provisions that may contravene the Unfair Contract Terms provisions.
Unfair Contract Terms in Construction Contracts
Construction Contracts contain a dense allocation of legal and commercial risk. Termination, set-off, indemnities, time bars, variations, extensions of time, suspension, security, defects provisions, Principal discretions and limitations of liability can all affect a Contractor's entitlement and exposure.
A strong right by the Principal to take an action or enforce an obligation against the Contractor is not necessarily "unfair". The right created by the clause, the legitimate interest it protects, the breadth of the drafting, the detriment to the Contractor and any safeguards elsewhere in the contract all need to be considered.
If the Contractor wants the whole Principal or Head Contractor contract reviewed, our Construction Contract Review covers the wider legal and commercial risk allocation. A focused Unfair Contract Terms Review is narrower and is intended to identify provisions that may be "unfair" and can be raised during negotiations.
What can a Contractor do about a potentially "unfair" term?
A Contractor asked to sign a Principal's or Head Contractor's standard contract can raise a provision that appears to present Unfair Contract Terms risk during the contract review and negotiation process. Depending on the clause, the Contractor may seek narrower drafting, a corresponding right, compensation where the Principal exercises the right, clearer limits on discretion or another safeguard that addresses the imbalance.
If the contract has already been signed and the Principal seeks to apply or rely on the provision, the Contractor should obtain legal advice before assuming the clause can simply be disregarded. A Lawyer can assess whether the contract comes within the regime, whether the term is likely to satisfy section 24 of the Australian Consumer Law and what options are available under the signed agreement.
A Contractor cannot make the clause void by declaring it "unfair"
The parties can agree to amend or remove the term. Where they disagree, only a court can finally determine that the disputed term is "unfair".
How to assess a contract clause for Unfair Contract Terms risk
Calling a provision an indemnity, termination right, time bar, variation clause or limitation of liability does not determine whether it is "unfair". The actual drafting has to be assessed against section 24 of the Australian Consumer Law and in the context of the complete contract.
What does the clause allow the Proposing Party to do?
Read the operative wording and identify the action, discretion or remedy the Proposing Party receives, together with any obligation imposed on the Counterparty.
Why does the Proposing Party need that right?
Identify the legitimate commercial interest being protected and compare the breadth of the clause with the risk the Proposing Party is actually trying to manage.
What happens to the Counterparty if the right is exercised?
Assess the financial, operational or other detriment that could result if the clause is applied or relied on in practice.
What does the rest of the contract change?
Read the clause with any qualifications, safeguards and counterbalancing rights elsewhere in the agreement before forming a view about whether it is "unfair".
How do you stop old contract terms being used after an Unfair Contract Terms review?
After standard terms have been amended, the practical risk is that an older version is still issued by someone in the organisation. Superseded contracts often remain in estimating folders, CRMs, procurement systems, quotation templates, Project folders and individual employees' computers long after the approved wording has changed.
Identify the approved version
Record the file name, version and review date so the business knows which document was approved.
Remove superseded copies
Check every system and location from which staff issue contracts, Terms and Conditions, Purchase Orders or Subcontracts.
Control future amendments
Decide who can change significant standard clauses and when amended drafting must go back for legal review.
Construction businesses have an additional practical risk because individual clauses are often copied between Projects. A Project Manager may start with an approved Subcontract and then reinsert an old Special Condition, indemnity or time bar that was not part of the reviewed document.
What are the penalties for Unfair Contract Terms?
The current Unfair Contract Terms provisions carry substantial civil penalties. The maximum amount depends on the contravention and, for corporations, the statutory penalty calculation. (Source)
Fixed corporate amount limb
For relevant contravening conduct on or after 28 March 2026, $100 million is one limb of the maximum corporate penalty calculation.
Separate contraventions can arise
Section 23 of the Australian Consumer Law provides for a separate contravention for each "unfair" term proposed. Applying or relying on an "unfair" term is separately prohibited. (Source)
Other corporate maximum limbs
The corporate maximum is the greater of $100 million, three times the reasonably attributable benefit where that amount can be determined, or 30% of adjusted turnover during the breach turnover period where the benefit cannot be determined. The maximum for an individual is $2.5 million. (Source)
The actual penalty imposed is determined by the court. The existence of multiple "unfair" terms can create multiple contraventions, but it does not mean the statutory maximum will be imposed for every contravention.
Unfair Contract Terms Review services
Blaze Business & Legal offers Contract Reviews dedicated to identifying potential Unfair Contract Terms in Commercial Contracts and Construction Contracts. The scope is deliberately narrower than a complete Contract Review, so the work is focused on whether the Unfair Contract Terms provisions apply and which clauses warrant amendment or negotiation.
Review a contract your business has been asked to sign
This review is for a business that has received another party's draft standard contract and wants potential "unfair" terms identified before signing or during negotiations.
- Assess whether the Unfair Contract Terms provisions are likely to apply.
- Identify clauses that warrant closer analysis under sections 24 and 25 of the Australian Consumer Law.
- Explain why particular provisions may be "unfair".
- Recommend amendments or negotiation positions where appropriate.
Review the standard contracts your organisation issues
This review is for an organisation that puts forward standard Terms and Conditions, Subcontracts, Purchase Orders, Supply Agreements, Consultancy Agreements or other repeat contracts.
- Assess whether the contract is likely to fall within the Unfair Contract Terms regime.
- Identify provisions that create material Unfair Contract Terms risk.
- Consider the legitimate interests the significant clauses are intended to protect.
- Recommend amendments where the drafting may go further than reasonably necessary.
Our fixed fees for an Unfair Contract Terms Review
Our fixed fees start from $1,000 + GST, depending on the size and complexity of the contract. The review is limited to identifying potential Unfair Contract Terms and does not include a complete review of the wider legal and commercial risk allocation.
If you want the whole agreement reviewed, request a Commercial Contract Review or a Construction Contract Review instead.
FAQs about Unfair Contract Terms
These answers address common questions about how the Unfair Contract Terms provisions operate in Commercial Contracts and Construction Contracts.
What terms are prohibited by the Australian Consumer Law under the Unfair Contract Terms provisions?
Part 2-3 of the Australian Consumer Law prohibits proposing an "unfair" term in a standard form consumer or small business contract. It also prohibits applying, relying on or purporting to apply or rely on an "unfair" term. Section 25 lists examples of terms that may be "unfair", but each clause still has to satisfy section 24. The Australian Consumer Law contains other prohibitions outside the Unfair Contract Terms provisions, which are not covered by this answer. (Source)
Do the Unfair Contract Terms provisions apply to business-to-business contracts?
The Unfair Contract Terms provisions can apply to a business-to-business contract where the agreement is a standard form small business contract under Part 2-3 of the Australian Consumer Law. At least one party must satisfy the small business threshold. The value of the contract does not by itself determine whether the provisions apply.
Does negotiating a contract mean it is no longer a "standard form contract"?
Negotiating some clauses does not automatically mean the contract is no longer a "standard form contract" under the Australian Consumer Law. A court considers the factors in section 27 and the extent of genuine negotiation. An opportunity to negotiate minor or insubstantial changes does not, by itself, take the contract outside the standard form provisions.
Is a limitation of liability an "unfair" contract term?
A limitation of liability is not inherently "unfair" under the Australian Consumer Law. The actual clause must be assessed against section 24, including significant imbalance, whether the term is reasonably necessary to protect legitimate interests, the detriment that could arise, transparency and the contract as a whole.
Can an Early Termination Fee be an "unfair" contract term?
An Early Termination Fee can be an "unfair" term if it falls within a standard form consumer or small business contract and satisfies all three requirements in section 24 of the Australian Consumer Law. Depending on the drafting and payment trigger, the separate law of penalties and other Australian Consumer Law provisions can also be relevant.
Can a business ignore a contract clause because it believes the term is "unfair"?
A party should not simply stop complying with a signed contractual obligation because it believes the clause is "unfair" under the Australian Consumer Law. The parties can agree to amend or remove the term without court proceedings, but only a court can finally determine that a disputed term is "unfair". Legal advice should be obtained before taking a position that could itself amount to a breach of contract.
Can a Contractor rely on the Unfair Contract Terms provisions against a Principal or Head Contractor?
A Contractor can rely on the Unfair Contract Terms provisions where the Principal's or Head Contractor's contract is a standard form small business contract and the other requirements in Part 2-3 of the Australian Consumer Law are satisfied. This can provide an additional basis for challenging particular provisions during contract review or negotiations.
Do the Unfair Contract Terms provisions apply when a Contractor issues its own Subcontract?
The Unfair Contract Terms provisions can apply when a Contractor issues its own standard form Subcontract, Purchase Order, Supply Agreement or Consultancy Agreement to a Counterparty that satisfies the small business requirements in Part 2-3 of the Australian Consumer Law. In that contract, the Contractor is the Proposing Party and can be exposed for proposing, applying or relying on an "unfair" term.
Get your contract reviewed for potential "unfair" terms
Send us the Commercial Contract or Construction Contract before you sign or issue it. Rachelle can carry out a focused Unfair Contract Terms Review to identify provisions that may contravene Part 2-3 of the Australian Consumer Law and explain the amendments worth seeking or making.
This service is limited to potential Unfair Contract Terms. If you want the whole contract reviewed, request a Commercial Contract Review or Construction Contract Review instead.
We charge a fixed fee for our Unfair Contract Terms Review, from $1,000 + GST, depending on the size of the contract.
