An update on unfair contract terms and Australian contract law

Reformed Contract Risks

Australia's unfair contract terms regime underwent major reforms on November 9, 2023, through the Treasury Laws Amendment (More Competition, Better Prices) Act 2022. These changes prohibit unfair terms in standard form contracts, making them illegal rather than merely voidable. Penalties escalated dramatically: corporations can face up to $50 million per contravention, or three times the benefit derived, whichever is greater; individuals risk $2.5 million fines. The scope widened to include businesses employing fewer than 100 people or with annual turnover below $10 million, removing prior thresholds of $300,000 for one-year contracts or $1 million for longer ones.

This shift affects millions of contracts across industries. In construction, for instance, standard agreements with subcontractors now fall under scrutiny, leading to uncertainty over clauses like indemnity provisions or payment terms. Insurance contracts, subject to the regime since 2021, saw further expansion under the ASIC Act, capping upfront prices at $5 million for small business protections. Real-world impacts include rushed reviews of templates, with firms like those in transport updating standard trading conditions to avoid breaches.

Stakes are concrete and immediate. The Australian Competition and Consumer Commission (ACCC) listed unfair terms among its 2025-26 enforcement priorities, focusing on cancellation-related clauses such as auto-renewals and non-cancellation policies. Deadlines for compliance passed in 2023, but ongoing variations or renewals trigger the rules. Inaction risks not just fines but court orders to redress losses, potentially costing millions in refunds or contract rewrites. Already, sectors report increased legal fees, with some estimating compliance costs in the hundreds of thousands per firm.

Non-obvious angles include stakeholder tensions. Small businesses gain leverage against giants, but larger companies argue the rules stifle innovation by discouraging tailored risk allocation. Surprising data from 2024 reviews shows many contracts still contain grey-area terms, like broad variation rights, inviting litigation. Counterarguments highlight that while protections curb exploitation, they may inadvertently raise barriers for startups negotiating with suppliers. In finance, the $5 million cap creates edge cases where high-value deals escape scrutiny, potentially distorting markets.