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 contracts:

• entered into on, or after 1 July 2010
• terms of existing contracts renewed or varied on or after 1 July 2010. 

The conditions to be met for unfair contract terms

The types of a term in a standard form consumer contract are considered to be unfair if:

• it causes significant imbalance in the parties' rights and obligations arising under the contract, and
• the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and
• it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on terms that the law may consider unfair.
   

The types of terms that the law may consider 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. 

When unfair contract terms law does not apply

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.
   

A court decides on unfair terms

Only a court can decide if a term is unfair.

When deciding whether a term is unfair, the court will consider:

• all the rights and responsibilities for each party under the contract
• whether the term is transparent.

A term is transparent if it is:

• in reasonably plain language
• clear, and
• not hidden.

The court will consider whether any other terms in a contract offset the potential unfairness of a term.

If a court 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 rest of the contract can continue without that term, then the rest of the contract will continue to apply to the parties.

The types of contracts that unfair contract terms laws 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.

There is a presumption that a contract is a standard form contract. So, the party that prepared the contract must prove that it is not.

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 consider any specific features of the other party or the transaction.

Unfair contract terms and standard contracts

Unfair contract terms on standard form contracts after 9 November 2023 are banned and penalties for breaches of the law apply. This means using or relying on unfair contract terms in standard form contracts is not allowed.

Other key changes include:

• deciding whether a contract is a standard form contract
• 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 the court will consider when looking at unfair contract terms on standard form contracts

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 businesses and unfair contract terms

Small businesses are protected from unfair terms in standard form contracts for:

• products
• services, or
• land transactions.

Standard form contracts and small businesses

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. After the 9 November 2023 changes, small businesses will be covered by the unfair contract terms protections for any new or varied standard form contract 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
• includes any casual employees if they are employed on a regular and systemic basis
• does not include employees of any related business entities. 

Tips for businesses to consider when reviewing 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 you can do if you 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 (ACCC) and the Australian Securities and Investments Commission (ASIC) 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.

The effects 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. 

Penalties

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 unfair contract terms law are the greater of:

• $50,000,000
• 3 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% of adjusted turnover during the breach period.

The maximum penalty for an individual is $2.5 million. 

Making a complaint

When making a complaint, you should include:

• details of the issues you are experiencing
• copies of any correspondence that shows how you have tried to resolve the matter.

How NSW Fair Trading will handle your complaint 

Your complaint will be reviewed to determine the most appropriate resolution. This may include:

• providing you with information to help resolve your complaint
• recording the complaint issues to assist in future compliance programs, or
• contacting the other party to try and resolve the dispute.

You can lodge a complaint: 

Online

If you cannot resolve your matter, submit your complaint by using our form.

Make a complaint

By mail

Post your complaint form and documentation to: 

NSW Fair Trading

PO Box 972 

Parramatta NSW 2124 

Ask a question 

If you are unable to find the information you need, you can call us between 8:30am to 5pm on Monday to Friday. You can also use our form to make an enquiry. 

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