Unfair Contract Terms penalties from November 2023 (Have you protected your Business?)

What do the Unfair Contract Terms and November 2023 have in common?

The Unfair Contract Terms Legislation has been around for years in Australia, but never with penalties. Now, massive multi-million dollar penalties are about to kick in - from 10 November 2023 - but many businesses have still not amended their standard form contracts to avoid contravening the amended obligations and prohibitions under the legislation. Here's what you need to know, and what you need to do about it before early-November 2023.

Caption reads, "Have you protected your Business from the Unfair Contract Terms Penalties?" Graphics of a contract and a hand holding a pen with the word "Unfair" written above it and the "Un" crossed out. Blaze Business & Legal Logo.

What you need to know about the Unfair Contract Terms and its Penalties

 We won't go into detail about the legislation changes in this article - you will find all the relevant information in our related articles:

Guide to the Unfair Contract Terms

The Unfair Contract Terms Changes

Here is a quick summary of the Unfair Contract Terms and their penalties:

  • The Competition and Consumer Act 2010 (Cth) contains the Unfair Contract Terms (UCTs), which provide protection to Consumers (and now Small Businesses) from Unfair Contracts.
  • The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 introduced changes to the Competition and Consumer Act and the UCT regime.
  • A year-long transition period was introduced, which ends on 9 November 2023.
  • From 10 November 2023, the penalties under the new Unfair Contract Terms will apply to Standard Form Consumer Contracts and Small Business Contracts.

Given that the massive penalties are almost upon us, in this article we're focusing on the practical things you need to do now if you're a business or individual who uses Standard Form Contracts. In other words:

  1. Is your business caught by the Unfair Contract Terms changes?
  2. What are the penalties if you are found with Unfair Contract Terms?
  3. What do you need to do to avoid Unfair Contract Terms Penalties?
  4. How do you amend your Standard Form Contracts if needed?

And remember, if you're not sure after reading, 
contact Rachelle Hare, who can talk you through the specific changes your business needs to put in place.

The best
Business Advisers
for your Business!

We work with you. To help your business work for you

We are skilled Business Advisers and both Rachelle Hare and Shannon Drew have advised thousands of businesses in Australia over our careers. 

In Blaze Business & Legal, we combine Business Advisory with our expertise in other areas to provide you with broad advice that works for your business...with no gaps!

But we don't just advise and make recommendations.

We then work with you to implement our recommendations and get actual outcomes and results for your business. 

1. Is your business caught by the Unfair Contract Terms changes?

Your business is caught by the changes to the Unfair Contract Terms legislation if:

  1. You enter into Standard Form Contracts
  2. With Small Businesses or Consumers,

unless your business is specifically excluded under the Unfair Contract Terms Act.

What happens if a term is unfair?

If a court finds that a term in a standard form contract is unfair, the term will be void. This means that the term is treated as if it had never existed. However, the contract will continue to bind the parties if it can operate without the unfair term.

If a court finds that a term is unfair, it can make a range of orders, including to:

  • declare all or part of the contract to be void
  • vary the contract
  • refuse to enforce some or all of the terms of the contract
  • direct the business to refund money or return property to the consumer affected, or
  • direct the business to provide services to the consumer affected, at the business's expense.

If a court has declared that a term is unfair and a business subsequently tries to apply or rely on the unfair term, the business will contravene the ASIC Act.

A court can then:

  • grant an injunction
  • order that the business provides redress to the consumer affected, or
  • make any other orders the court considers appropriate.

Standard Form Contracts

The term 'standard form' includes contracts that are repeatedly used across different customers.

Courts may disregard minor changes or pre-determined terms within a contract when determining if it's a standard form.

According to ASIC, standard form contracts are typically used for the supply of goods and services to consumers in many industries, including:

  • telecommunications
  • finance
  • domestic building
  • gyms
  • motor vehicle rentals
  • travel
  • utilities.

In deciding whether a contract is a standard form contract, a court may consider a range of relevant matters but must take into account:

  • whether one of the parties has all or most of the bargaining power in the transaction
  • whether the contract was prepared by one party before any discussion occurred between the parties about the transaction
  • whether the other party was, in effect, required to either accept or reject the terms of the contract in the form in which it was presented
  • whether the other party was given an effective opportunity to negotiate the terms of the contract
  • whether the terms of the contract take into account the specific characteristics of the other party or the particular transaction.

Small Businesses

The definition of 'Small Business' now includes businesses with fewer than 100 employees or an annual turnover of less than $10 million.

Businesses and individuals who use Standard Form Contracts will need to continuously check whether their counterparties fall within this definition in order to ensure compliance.

Keep in mind that the definition now will have some unintended consequences - Contractors may now be caught where they contract with a small business Principal such as a Mining Joint Venture. Be aware of this!!!

Consumer Contracts

The Unfair Contract Terms Laws apply to ‘consumer contracts’ as defined by both the ACL and the ASIC Act. 

Under the ACL, a ‘consumer contract’ is a contract for:

  • the supply of goods or services
  • the sale or grant of an interest in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.

ACL reference: section 23 (3)

Under the ASIC Act, a similar definition of a consumer contract applies in relation to financial products and services. ASIC Act reference: section 12BF

Exclusions from the Operation of the Unfair Contract Terms Legislation

According to ASIC, the Unfair Contract Terms Law in the ASIC Act does not cover the following contracts:

  • individually negotiated contracts
  • the constitutions of companies, managed investment schemes or other kinds of bodies
  • are required, or expressly permitted, by a law of the Commonwealth or a state or territory
  • medical indemnity insurance contracts
  • certain shipping contracts
  • insurance contracts that are not contracts for financial products or services under the ASIC Act, including contracts for private health insurance, compulsory third party insurance, and workers compensation insurance, or
  • insurance contracts entered into or renewed before 5 April 2021 (but terms in existing contracts varied on or after 5 April 2021 are covered).

There are also specific types of contract terms that are excluded: 

Terms that are not covered by the Unfair Contract Terms Law

Type of term

Description

Terms that define the main subject matter of the contract

The 'main subject matter' of a contract is the product or service acquired under the contract (i.e. the basis for the existence of the contract). For insurance contracts, the main subject matter is limited to what is being insured (eg a car). 

Terms that set the upfront price payable

The 'upfront price payable' is the amount disclosed for supply of the product or service at or before the time the contract is entered into. It does not include fees and charges for something that may or may not happen during the contract. For insurance contracts, the upfront price payable is the premium. 

Terms that are required or expressly permitted by a law of the Commonwealth, or a state or territory

These terms cannot be considered under the Unfair Contract Terms Law.

Unfair

A term in a standard form consumer contract is 'unfair' if it:

  • would cause a significant imbalance in the parties’ rights and obligations arising under the contract
  • is not reasonably necessary to protect the legitimate interests of the party that would benefit from the term, and
  • would cause detriment (financial or otherwise) to a consumer if it were to be applied or relied on.

Regulatory action often targets terms that allow broad discretions, unilateral variations, and limitations of liability among others.

Only a court can determine whether a contract term is unfair. 

Transparency

When a court decides whether a term is unfair, it must consider the extent to which the term is transparent. A term is 'transparent' if it is legible, expressed in reasonably plain language, presented clearly, and readily available to any party affected by the term.

A term may not be transparent if, for example, it is hidden in the fine print or written in legal or complex language.

Transparency is, however, just one of a number of factors a court will consider. A term that is transparent could still be unfair.

Context

The court must assess the fairness of a term in the context of the contract as a whole.

A potentially unfair term may be counterbalanced by additional benefits being offered to the consumer. This means that a term could be unfair in one contract but not unfair in another.

The court may also consider any other matters it thinks relevant, and will determine whether unfairness arises in a particular contract on a case-by-case basis.

Type of TermExplanation and Risks
Limiting PerformanceTerms allowing a business to avoid or limit obligations can imbalance parties' rights.
Termination RightsUnilateral termination by a business without reasonable necessity may be deemed unfair.
Penalties for Breach/TerminationPenalties for trivial breaches or above legal sanctions may be unfair.
Unilateral Variation of TermsTerms allowing a business to alter agreed terms may be unfair, especially if it increases costs.
Renewal RightsUnilateral renewal or non-renewal by a business can cause consumer detriment.
Price VariationUnilateral price changes need to be transparent and may still be unfair even with a right to cancel.
Varying Goods/ServicesUnilateral changes to the product or service can conflict with consumer expectations.
Determining Breach/InterpretationTerms allowing a business to unilaterally determine breach or meaning may be unfair.
Limiting Vicarious LiabilityDisclaiming responsibility for agents' representations may be unfair.
Limiting Right to SueTerms hindering a consumer's right to sue can be unfair and disadvantageous.
Limiting Evidence in Legal ActionTerms restricting the evidence a consumer can present in court may be unfair.

What are the penalties if you are found with Unfair Contract Terms?

The penalties if you are found with Unfair Contract Terms are massive - minimum $2 million for individuals and minimum $50 million for corporations!!!

For us Contract Lawyers and Commercial Lawyers who are advising our clients on ensuring they do not have Unfair Contract Terms, we believe that the ACCC and ASIC will prioritise enforcement of the Unfair Contract Terms - we expect to see substantial action taken against individuals and corporations over the next few months given the lengthy grace period.

What do you need to do to avoid Unfair Contract Terms Penalties?

You need to have amended your Standard Form Contracts before 10 November 2023.

How do you amend your Standard Form Contracts?

Businesses should review their Standard Form Contracts for compliance before the 10 November 2023 deadline.

This means that you should:

  • Assess whether you have any Standard Form Contracts
  • Determine whether your Standard Form Contracts will be used with small businesses or consumers
  • Conduct a case-by-case assessment to identify any Unfair Contract Terms in those Standard Form Contracts
  • Amend the Unfair Contract Terms to remove any "unfairness"

Possible approaches and risk mitigation strategies include:

  • Automatic Renewal Terms: Implement notification obligations and shorter renewal periods.
  • One-sided Liability Terms: Make limitations mutual and remove one-sided indemnities.
  • Unilateral Variation Terms: Require customer consent and introduce notice periods.
  • Unfair Payment Terms: Allow termination if fees are increased and introduce invoice challenge processes.
  • Imbalanced Termination Rights: Limit suspension rights to specific breaches and introduce notice requirements.

Businesses with a mix of contracts are likely to face greater challenges in ensuring compliance. Some of our SME clients have decided to treat all of their contracts as falling within the UCT regime to limit their potential regulatory risk given the massive potential penalties.

Let's chat about how we can help your business

Rachelle Hare and Shannon Drew, Blaze Business & Legal
  • Free Initial Consultation
  • No-Obligation Quote for our Services
  • We Work to your Budget and Timeframes

Call Rachelle Hare on 0407 050 907 or fill out the form below and we'll contact you

Not quite ready to chat?

Take our free Business Quiz

  • Identify some of the challenges in your Business
  • Get no-obligation suggestions from us about how you can overcome those challenges

About the Author

Rachelle Hare

Rachelle Hare - Managing Director and Principal Practitioner of Blaze Business & Legal

Rachelle Hare

Rachelle Hare is a highly experienced Construction Lawyer and Contract Lawyer, with over 23 years of experience in Tier 1 and Tier 2 Construction Firms, Top Tier Private Practice and Government.

With 23+ years of experience as a Senior Lawyer, Strategic Contracting Adviser and Management Consultant in Construction Law, Contracts, Major Projects, Commercial Advisory, Compliance, Procurement, Contract Management and Risk Management, Rachelle has the rare skills to offer you seamless business advice and legal advice to help support your organisation.


As well as a Lawyer and Business Adviser, Rachelle has also acted as a Strategic Procurement Adviser, Compliance Manager, Strategic Risk Adviser and Commercial Manager.

Rachelle owns
Blaze Business & Legal, a combined Commercial Law Firm and Business Advisory Firm located in Brisbane, Queensland, Australia. Blaze Business & Legal assists a broad range of clients in the Construction Industry and related industries, and advises owners, contractors, subcontractors, NFPs and other organisations on a broad range of Construction Law, Commercial Law, Business Advisory and Management Consulting issues in Brisbane, Queensland and around Australia.

Rachelle also owns Blaze Professional Learning, where she offers practical contracting skills, hands-on experience in drafting and working with contracts, and industry insights to help Professionals upskill and advance their careers with real-world skills.

Leave a Comment

Scroll to Top