Business Insights Small Business
5 mins read

Australia’s unfair contract terms regime changes significantly

Written by Prue Greenfield, Principal Lawyer – Litigation and Dispute Resolution, Macpherson Kelley, and Eliza Sinclair, Lawyer – Trade and Commercial, Macpherson Kelley

We have heard a lot about changes to unfair contract terms in the last couple of years.

The ‘unfair contract terms’ laws (as set out in the Australian Consumer Law (ACL) establish out a regime whereby a term in a consumer or small business contract will be void if the term is unfair and the contract is a standard form contract.

Australia’s Unfair Contract Terms regime (UCT) has now been significantly expanded in respect of ‘small businesses’. The changes were passed by Parliament on 28 October 2022 and will come into effect on 9 November 2023.

The changes are monumental in terms of the penalties and scope of what is considered an “unfair” term. This will have significant impacts on many businesses – both in terms of the time it will take to review and amend contracts but also the consequences for not doing so.


What is a standard form contract?

A standard form contract is a contract which has been prepared by one party (Proposer) to an agreement and is presented to the other party (Other Party) on a “take it or leave it” basis with that party having limited or little opportunity to negotiate or alter the terms.

To determine whether a contract is a standard form contract, a court will consider all relevant matters including:

  • Does the Proposer have all or most of the bargaining power?
  • Did the Proposer prepare the contract, prior to any discussion relating to the particular transaction?
  • Was the Other Party required to either accept or reject the terms, in their proposed form?
  • Was the Other Party given an opportunity to negotiate the terms?
  • Do the terms of the contract consider the specific circumstances of the parties and the transaction?

What is an unfair term?

For a term to be “unfair” it must:

  • Cause a significant imbalance in the parties’ rights and obligations.
  • Not be reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  • Cause a financial or other detriment (such as delay) to a small business if it were relied on.
  • In deciding whether a term is unfair, a court will consider how transparent the term is, as well as the overall rights and obligations of each party under the contract.

A term will be transparent if it is:

  • In plain language;
  • Legible;
  • Presented clearly; and
  • Readily available to any part affected by the term

The following types of provisions in small business loan contracts are likely to be unfair:

  • Entire agreement clauses;
  • Broad indemnification clauses that do not exclude losses and liabilities arising from the fraud, negligence or wilful misconduct of the lender or its officers, employees, contractors, agents or receivers;
  • Material adverse change default clauses and broad cross-default clauses;
  • Non-monetary defaults that do not provide a reasonable remedy period or adopt a materiality threshold; and
  • Broad unilateral variation clauses, including those that do not provide sufficient prior notice of the variations (particularly where the customer does not have a right to terminate without penalty).

Who does it apply to?

Presently under the ACL, the UCT regime applies to a small business where:

  • At least one party to the contract employs fewer than 20 persons; and
  • The upfront price payable under the contract does not exceed $300,000, or $1 million if the contract is for more than 12 months.

This will now be expanded to:

  • At least one party to the contract employs fewer than 100 persons; and
  • The small business has an annual turnover of less than $10,000,000

In the case of a consumer contract, the UCT regime applies to contracts for sale or supply to an individual whose interest is predominantly for personal, domestic or household use/consumption.

What has changed?

The key changes brought in by the amendments to the Competition and Consumer Act 2010 (Cth) (CCA) are:

  • Wider scope of application – the UCT laws apply to significantly more businesses and transactions;
  • Wider scope of consequences resulting from a breach – the courts have been given significantly more broad and far-reaching powers; and
  • Higher penalties – a five-fold increase
From (Old Penalty)To (New Penalty)
Corporation the greater of:

  • $10 Million

  • 3x the obtained benefit from the contravention; or

  • 10% of Australian turnover during the breach period.

Corporation the greater of:

  • $50 million

  • 3 x the "reasonably attributable" benefit obtained from the conduct; or

  • 30% of adjusted turnover during the breach turnover period (including that of related bodies in corporate group)


  • $500,000


  • $2.5 million

Unfair contract terms: Consequences of breach

From 9 November 2023 UCTs will be illegal as opposed to just unenforceable, so now is the time to review your contracts as they will take a while to review and amend. Importantly, many of these additional penalties can be sought at any time within six years from the date the contract term was declared to be an UCT.

Similar conceptual amendments have also been made to the Australian Securities and Investments Commission Act 2001 (ASIC Act) regarding UCTs in contracts for financial products, although the penalty regime is different.

Many of these orders will also bind a person affected by the order, even if that person was NOT a party to the original proceedings (e.g. a subsequent purchaser of the business).

Why the change?

The ongoing emphasis on consumer and small-business protection. The ACCC has commented that the purpose of the change to the UCT regime is to improve small business and consumer confidence when entering into or renewing standard form contracts in the future and prevent them being taken advantage of.

The change is important to protect consumers and small businesses where there may be an imbalance in bargaining power.

A recent decision on unfair terms

Lobux Pty Ltd v Willshaun Pty Ltd (2022) FCA 204

On 11 March 2022, the Federal Court declared that several clauses in the agreement entered into between the parties were “unfair contract terms” under the unfair contract terms legislation and were void. There were several terms that were considered but in particular whether the agreement provided an “overabundance of security”.

It was found that clause 12, being a charging clause, which gave Lobux an unregistered mortgage and entitlement to lodge a caveat over property owned by the customer, was an unfair term. The issue was with the wording “any land, realty or other assets capable of being charged” and the clause also charged all rights, title and interests in all of the customer’s assets which are” capable of being charged” either “now or in the future”.

The clause did not specify a particular property and gave Lobux a charge over property that the customer may acquire in the future. The clause was found to be excessive and was not reasonably necessary in order to protect Lobux’s legitimate interests.

Review your contracts

Given the significant impact of these decisions and the expansion of the unfair contracts regime with the definition of what constitutes a “small business” and the introduction of the penalty regime, we recommend that businesses that supply goods, services or finance to small business customers (or that are small business suppliers themselves) review their standard form contracts to make sure that they comply with the UCT laws.

commercial credit dispute resolution small business small business tips trading
Prue Greenfield
Associate Director
Prue is an Associate Director at Burch & Co Lawyers. She has over 20 years’ experience in litigation and all aspects of commercial disputes including franchising, debt recovery, insolvency, lease disputes, building and construction and shareholder disputes. Her clients include small to medium-sized businesses, foreign-owned subsidiaries, franchisors, franchisees, insolvency practitioners, company directors and individuals. Prue is a member of the Franchise Council of Australia, the Australian Institute of Credit Management and a regular attendee at Women in Insolvency and Restructuring (WIRV) events.
14-Day Free Trial

Get started with CreditorWatch today

Take your credit management to the next level with a 14-day free trial.

You might also like

Media Release: Business Risk Index
Business conditionsBusiness Insights

External administrations surge to record high; construction sector dominates ATO tax debt defaults

Media Release: Business Risk Index
Business conditionsBusiness Insights

Invoice defaults at record highs as cost pressures squeeze businesses

Hey, Wait…

Subscribe to our newsletter

You’ll never miss our lat news, webinars, podcasts etc. Our newsletter is sent our regularly so don’t miss out.