Unfair contract terms

Penalties for unfair contract terms

Businesses contracting with consumers and/or small businesses should be aware that from 9 November 2023, significant penalties can apply if your standard form contract contains unfair contract terms. We encourage all clients to seek an urgent legal review of their standard form contracts.

What is considered ‘unfair’

It is not uncommon for standard form contracts to contain unfair terms.

An ‘unfair’ term in a contract can cause a significant imbalance in the parties’ rights and obligations under a contract. An ‘unfair’ term is one not reasonably necessary to protect legitimate business interests and would cause financial or other disadvantage if applied. An example of ‘unfair’ term is permitting one party, but not the other to terminate the contract.

Who is subject to the regime?

A party cannot place an unfair term in a standard form ‘consumer contract’ or ‘small business contract’.

A ‘consumer contract’ is a contract for the supply of goods or services, financial products or financial services or 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.

From 9 November 2023, a small business will be comprised of less than 100 employees or having an annual turnover of less than $10 million.

Penalties

Previously, unfair terms where void. Whilst this represented a risk, many businesses including banks and telecos did little in response to the unfair contract regimes. So, the Federal Government has introduced significant monetary penalties for entities that continue to rely on an unfair contract terms. This includes fines of up to $2.5 million for individuals, and for corporations, the higher of either:

$50 million;

3 times the values of the benefit from the unfair term; or

30% adjusted turnover during the contravention turnover period.