Unfair contract terms

Australian Consumer Law has a national unfair contract term that protects consumers by removing unfair terms in standard form consumer contracts. The law applies to new contracts entered into on, or after 1 July 2010 and terms of existing contracts renewed or varied on or after 1 July 2010.

Changes to the law on unfair contract terms

Changes to the law on unfair contract terms start on 9 November 2023.

From this date, proposing, using or relying on unfair contract terms in standard form contracts will be banned and penalties for breaches of the law will apply.

Other key changes include deciding whether a contract is a standard form contract and the definition of a small business contract.

The changes apply to:

• standard form contracts made or renewed on or after 9 November 2023
• a term of a contract that is varied or added on or after 9 November 2023.

Where a term of a contract is varied or added on or after 9 November 2023, the changes relevant to deciding whether a contract is a standard form contract apply to the whole contract.

What type of contracts does the law apply to?

The law applies to standard form consumer and small business contracts for the supply of goods and services, or for the sale or grant of an interest in land, to an individual for personal, domestic or household use.

Standard form contracts

Generally, a standard form contract:

• is prepared by the business
• contains a set of generic terms and conditions
• is not negotiated between parties
• is presented on a 'take it or leave it' basis.

You enter standard form contracts all the time - typically for home loans, credit cards, mobile phones, gym memberships, travel and health insurance and utilities.

There is a presumption that a contract is a standard form contract, so the party that prepared the contract must prove that it isn’t.

In deciding what a standard form contract is, a court will consider whether one of the parties to the contract:

• has all or most of the bargaining power in the transaction
• prepared the contract without or before any discussion between the parties about the transaction
• could effectively only either accept or reject the terms of the contract as presented
• was given any real opportunity to negotiate the terms of the contract
• whether the terms of the contract take into account any specific features of the other party or the transaction.

Changes to the law on standard form contracts

A change to the law starts on 9 November 2023. This change gives more guidance on how to decide whether a contract is a standard form contract.

In addition to the existing factors, a court will also consider whether the party that prepared the contract has also made other contracts that are the same or very similar and the number of times this has been done.

The change to the law will also make clear that a contract may be a standard form contract despite:

• the other party having an opportunity to negotiate changes to terms of the contract that are minor or insubstantial in effect
• the other party being able to select a term from a range of options determined by the party that prepared the contract, or
• the party that prepared the contract letting a third party negotiate the terms of a different contract. This means that even if some consumers or small businesses are able to negotiate the terms of a contract that is issued to a broader group of consumers or small businesses, the contract may still be a standard form contract.

Small business and unfair contract terms

Small businesses are protected from unfair terms in standard form contracts for products, services or land transactions

Changes to the law on standard form contracts

The changes to the unfair contract term laws also expand the coverage of the unfair contract term laws to apply to more small business contracts. From 9 November 2023, small businesses will be covered by the unfair contract terms protections for any new or varied standard form contract from that date if they:

• employ fewer than 100 persons, or
• make less than $10 million in annual turnover.

Employees are counted by:

• considering the number at the time the contract is agreed
• including any casual employees if they are employed on a regular and systemic basis
• not including the employees of any related business entities

Are there contract terms excluded from the laws?

The unfair contract terms law does not apply to:

• terms that are specifically required or permitted by another law
• terms that set out the upfront price to be paid
• terms that define the main subject matter of the contract
• company constitutions
• commercial contracts for the shipping of goods by sea.

When is a term unfair?

Under the provisions, a term is unfair if these three conditions are met:

• if the contract term is one-sided and greatly favours the business over the consumer, and
• there is no satisfactory commercial reason why the business needs such a term, and
• the consumer will suffer financial loss, inconvenience or other disadvantage if the term is enforced, then it may be unfair.

What types of terms might be unfair?

The law contains a list of the types of terms that may be considered unfair. Contracts can still include these terms, as they are not banned, but if used in certain circumstances they can be unfair:

• Terms that allow the business to make unilateral changes to important aspects of the contract, such as increasing charges or varying the type of product to be supplied, with no right for the consumer to cancel the contract without penalty
• Terms that avoid, limit, or restrict the liability of a supplier, its employees or agents for a breach of the contract
• Terms that require consumers who breach the contract or end it early to pay an excessive amount in compensation or cancellation charges.

Who decides if a term is unfair?

Only a court or the NSW Civil and Administrative Tribunal can decide if a term is unfair.

The court or Tribunal must consider:

• whether the term meets the three tests of unfairness
• how the term was expressed in the contract. For example, it may be hidden in fine print or written in legalese.
• the contract as a whole. A term that seems unfair may be reasonable if it is balanced by other terms offering benefits such as lower prices.

Tips for businesses to consider when reviewing their contracts

• Consider both points of view: if you think a term is necessary to protect your business’s legitimate interest, consider the term from the other party’s point of view.
• Include counter-balancing terms: check that your contract has appropriate counter-balancing terms. For example, if you consider that your business reasonably needs the ability to unilaterally change the product or service being provided under the contract, does the contract also allow your customers to exit the contract without penalty when this occurs?
• Avoid broad terms: don’t have terms that are as broad as possible. Make sure terms are only as broad as reasonably necessary to protect your business’s legitimate interests.
• Meet your obligations under the Australian Consumer Law: don’t have terms that seek to avoid your business’s obligations under the Australian Consumer Law. For example, don’t include terms that seek to limit your customers’ consumer guarantees rights, or terms that seek to disclaim any representations your business may have made outside of the contract.
• Be clear: Use clear and simple language in your contracts.
• Be transparent: ensure key terms are clearly drawn to the attention of your customers during the sign-up process, and any renewal process.

What happens to a contract that contains an unfair term?

If a court or Tribunal finds that a term is unfair, it is void. The term is treated as if it never existed and cannot be enforced or relied on. If the unfair term is removed, the contract still stands.

Changes to the law on standard form contracts

From 9 November 2023, a court or Tribunal can impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts.

The maximum financial penalties for businesses under the new unfair contract terms law are the greater of:

• $50,000,000;
• three times the value of the "reasonably attributable" benefit obtained from the conduct, if the court can determine this; or
• if a court cannot determine the benefit, 30 per cent of adjusted turnover during the breach period.

The maximum penalty for an individual is $2.5 million.

What can I do if I think a contract term is unfair?

If you think a term in your contract is unfair, you should first try to resolve the issue with the business.

NSW Fair Trading, the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission can give you general information on the way the unfair contract terms law works.

If you’re not able to resolve a dispute directly with the business, lodge a complaint with NSW Fair Trading or the ACCC.

If the dispute is still not resolved, you might be able to make an application to the NSW Civil and Administrative Tribunal.

You can apply to the Supreme Court for a declaration that a contract term is unfair. You should get legal advice if considering this option.

What is the effect of a declaration?

A declaration binds all parties to consumer contracts, unless the Supreme Court orders otherwise.

A declared unfair term is void. A business who tries to enforce a declared unfair term against a consumer, is in breach of the Fair Trading Act. NSW Fair Trading can then apply to the Supreme Court for:

• an order to provide redress to consumers
• an injunction, or
• any other order the Court sees fit to make.

Who will enforce the law?

The following agencies will enforce provisions relating to consumer goods and services:

• Australian Competition and Consumer Commission (ACCC)
• NSW Fair Trading, and
• other State and Territory consumer protection agencies.

The Australian Securities and Investments Commission (ASIC) will enforce provisions relating to financial products and services.

Who should I contact for complaints or enquiries?

For complaints and enquiries on consumer goods and services, contact: