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  • Valentina O'Regan

Significant Changes to Unfair Contract Terms

Updated: Feb 7

The Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Amendment Act) has amended the Australian Consumer Law (schedule 2 of the Competition and Consumer Act 2010 (Cth)) (ACL) and the Australian Securities and Investment Commission Act 2001 (Cth) to impose significant penalties for proposing or relying on unfair contract terms, elevating the importance of ensuring standard form contracts, especially loan and security documents, do not contain any unfair contract terms.


The Amendment Act aims to provide greater deterrence from using unfair contract terms, which remain prevalent despite the initial legislation being in place since 2016.


The Amendment Act will take effect from 9 November 2023.


While there is a transition period, we suggest businesses should act now to ensure their standard form contracts do not contravene the expanded “unfair terms" regime in the ACL, which could expose businesses to significant penalties and increased litigation against the business by consumers enforcing their rights under the ACL.


Alternatively, customers the subject of standard form contracts containing unfair terms should be aware of their rights against the party wishing to enforce unfair terms against them.


Unfair Terms Regime

Under section 23 of the ACL:


'(1) A term of a consumer contract or small business contract is void if:

(a) the term is unfair; and

(b) the contract is a standard form contract.'

(our emphasis)


Under the current "unfair terms" regime in the ACL, it is possible to apply to the Court to seek an order that an unfair term is void and unenforceable, or indeed that the whole or part of the contract is unenforceable.


What are “Unfair Terms”?

Examples of “unfair terms” are set out in section 25 of the ACL. This is not an exhaustive list, and there could be others depending on the circumstances. Examples in section 25 of the ACL include:


'(a) a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;

(b) a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;

(c) a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;

(d) a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;

(e) a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;

(f) a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;

(g) a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;

(h) a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;

(i) a term that limits, or has the effect of limiting, one party’s vicarious liability for its agents;

(j) a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent;

(k) a term that limits, or has the effect of limiting, one party’s right to sue another party;

(l) a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract;

(m) a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract;

(n) a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.'


Recently, Stewart J of the Federal Court of Australia in Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 928 also determined that other terms were “unfair terms” for the purpose of section 25 of the ACL. The matter was resolved through mediation with Australian Competition and Consumer Commission, where Fujifilm conceded their standard form “Capture Contracts” issued to its customers included unfair contract terms and these contracts were covered by the ACL as they were "small business contracts”. The case concerned some 35,000 “Capture Contracts” which were infected with “unfair terms”.


Stewart J found “unfair terms” in the "Capture Contracts" included:


  • Unilateral variation of price terms;

  • Automatic renewal of contract terms;

  • Terms which were only accessible in extraneous documents, which are not easily accessible by the customer;

  • A term requiring the customer to pay all costs Fujifilm incurs in exercising its rights, including legal costs on a full indemnity basis, with no corresponding right for the consumer

  • A warranty given by the customer that they had read all the various material, including those documents and clauses incorporated by reference to extraneous documents;

  • Significant caps and reduction of Fujifilm’s liability and removal of liability for consequential loss;

  • Indemnification of Fujifilm for loss and damage, even subject to exclusions for wear and tear and Fujifilm’s own negligence;

  • An entitlement of Fujifilm to suspend provision of services but still requiring the customer to pay for those suspended services;

  • A right to terminate the contract immediately with no corresponding right for the customer;

  • An obligation for balloon payments by the customer when contract is terminated by Fujifilm;

  • An obligation at the end of the minimum term of the contract to either return the equipment or to pay any shortfall;

  • Provisions in respect to the return of the documents irrevocably binding the consumer, but not binding on Fujifilm until it indicates it has adequate stock; and

  • A right to Fuji to invoice even if goods have not yet been provided.


The Unfair Terms Regime under the Amendment Act

Under the Amendment Act, the following changes apply to expand the impact of the unfair terms regime in the ACL:

Expanded Definition of Small Businesses

Amendment Act schedule 2, part 4 states:


  • A “small business” is any business who employs up to 100 persons or has an annual turnover of less than $10 million in the "last income year"; and

  • Casual employees are not counted unless they are employed on a regular and systemic basis, and part-time employees are counted as a fraction of the full-time employee.


Increased Penalties

​This is the first time in which the maximum penalties for "unfair" contract terms have specified in the ACL.

Sections 11 and 12 of the Amendment Act state that breaches of section 23 of the ACL are now subject to the maximum penalties in section 224(3A) of the ACL.

Section 224(3A) of the ACL states that the current maximum penalties for breach of the "unfair" contract terms prohibition are:

'(a) $50,000,000;

(b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission, 3 times the value of that benefit;

(c) if the court cannot determine the value of that benefit, 30% of the body corporate’s adjusted turnover during the breach turnover period for the act or omission.'

Section 104 of the Amendment Act increased the amount listed in (a) from $10,000,000 to $50,000,000.

​Additional Powers of the Court

The Court has been granted powers in addition to their power to deem a term void and enforceable, and their power to make the whole or any part of the contract void. The Court will not have to consider whether or not actual loss or damage has been suffered.


The Court can also order an "unfair term" to be excluded from any future standard form small business or consumer contracts, including where an application for this is brought by ASIC or the ACCC.

Additional Injunctive Powers

​In addition to its usual injunctive powers, the Court can make an injunction restraining a person from:


  • Entering into any future contract that contains a term that is the same or is similar in effect to a term that has been declared an "unfair" contract term; or

  • Applying, or relying on, a term in any existing contract that is the same or is similar in effect to a term that has been declared "unfair", whether or not that contract is before the Court.

​Standard Form Contracts

​In considering whether a contract is a standard form contract, the Court can now look at whether one of the parties has used the same or similar contracts before.


The Court may determine that a contract is a standard form contract despite there being an opportunity for:


  • A party to negotiate changes to the contract terms that are minor or insubstantial in effect;

  • A party to select a term from a range of options determined by another party; or

  • A party to another contract or proposed contract to negotiate terms of the other contract or proposed contract.

Other Changes

The law now refers to a ‘non-party’ to clarify that the law applies to consumers and small business.


Certain categories of contracts are excluded from the operation of the regime including operating rules of licenced financial markets such as the ASX, certain life insurance contracts and operating rules of licenced clearing and settlement facilities.


Contractual provisions that are taken to be included in a contract by the operation of a Commonwealth, state or territory law are also excluded from the regime to the extent that the relevant law mandates their inclusion (in addition to current exemptions).


Next Steps

It is critical to ensure that your contract does not contain any unfair terms and that they are complaint with the Amendment Act (and indeed the existing unfair terms regime in the ACL).


A copy of the ACL can be found here.


If you require advice on the ACL, please contact our expert commerical lawyers who can assist you in reviewing your contract and providing advice on your rights under the unfair terms regime.


The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.


Contributors: Valentina O'Regan, Harry Chen



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