Unfair Contract Terms in Australia: The Law Since November 2023

Since 9 November 2023, proposing or relying on an unfair term in a standard form consumer or small business contract is itself unlawful under the Australian Consumer Law, carrying penalties of up to $100,000,000 for a corporation, not merely a term a court can strike out.

This article addresses unfair contract terms under Part 2-3 of the Australian Consumer Law (sections 23 to 28). It does not address unfair terms in financial product or credit contracts, which are regulated separately and enforced by ASIC.

From "void" to "unlawful": what changed on 9 November 2023

Before 9 November 2023, an unfair term in a standard form consumer contract was simply void; the rest of the contract stayed on foot under section 23(2), but there was no separate penalty just for including or using the term. That changed with amendments that took effect on 9 November 2023. Section 23(2A) now makes it a contravention to propose an unfair term in a standard form consumer or small business contract, and section 23(2C) separately makes it a contravention to apply or rely on, or purport to apply or rely on, such a term. Section 23(2B) confirms each unfair term a business proposes or relies on is treated as its own separate contravention, meaning a contract containing several problematic clauses can multiply the number of contraventions rather than being treated as a single breach. These changes apply to a standard form contract made or renewed on or after 9 November 2023, and to any term varied or added on or after that date, in which case the whole contract is assessed under the current rules.

The three-part test for an unfair term

Section 24(1) sets out the test a court applies. A term is unfair if it would cause a significant imbalance in the parties' rights and obligations arising under the contract; it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and it would cause financial or other detriment to a party if it were applied or relied on. All three elements need to be satisfied, not just one. Section 24(4) shifts the practical burden in an important way: a term is presumed not to be reasonably necessary to protect the advantaged party's legitimate interests unless that party proves otherwise, so a business relying on a broad or one-sided clause generally has to justify it. Section 24(2) also requires a court to consider the contract as a whole and the extent to which the term is transparent, meaning expressed in plain language, legible, clearly presented and readily available to the party affected by it.

Examples of terms that may be unfair

Section 25 lists examples, without limiting the general test in section 24, of the kinds of terms that may be unfair in a consumer or small business contract. They include: a term letting one party, but not the other, avoid or limit performance of the contract; a term letting one party, but not the other, terminate the contract; a term penalising one party, but not the other, for breach or termination; a term letting one party unilaterally vary the contract's terms, or the characteristics of the goods or services being supplied; a term letting one party vary the upfront price without giving the other party a right to terminate; a term letting one party unilaterally decide whether the contract has been breached, or interpret its meaning; a term limiting one party's liability for its own agents; a term restricting the evidence a party can bring in a dispute, or shifting the evidential burden onto one party; and a term letting one party assign the contract to the other's detriment without consent.

What is a standard form contract

The unfair contract terms protections only apply to a standard form contract, which is not defined exhaustively but is presumed under section 27 to exist once a party alleges it; the party who prepared the contract carries the burden of proving otherwise. A court weighs factors such as whether one party had all or most of the bargaining power, whether the contract was prepared before any real discussion between the parties, whether the other party could only accept or reject the contract as presented, whether the other party was given a genuine opportunity to negotiate, and whether the contract accounts for the specific features of the other party or the transaction. A contract can still be standard form even where the other party had a chance to negotiate terms that were minor or insubstantial, or could pick from a limited set of options set by the drafting party.

The small business contract threshold

A contract is a small business contract under section 23(4) if it is for a supply of goods or services, or a sale or grant of an interest in land, and at least one party either makes the contract while employing fewer than 100 persons (counted under the rules in section 23(5), which include regular casual employees and pro-rate part-time employees), or had turnover under $10,000,000 for its last completed income year at the time the contract was made. This is a considerably broader test than the one it replaced from 9 November 2023, which had capped eligibility at 20 employees and an upfront price under $300,000 (or $1,000,000 for contracts running more than 12 months). Because the current test is based on the counterparty's size rather than the contract's dollar value, a much larger share of business-to-business standard form contracts now falls within the unfair contract terms protections than did before the change.

Penalties

Section 224(3) item 2A sets the maximum penalty for a contravention of section 23(2A) or 23(2C). For a body corporate, the court may order payment of the greater of $100,000,000, three times the value of the benefit reasonably attributable to the contravention, or 30% of the corporation's adjusted turnover during the breach turnover period, calculated under section 224(3A). For an individual, the maximum is $2,500,000. These are maximums, not fixed amounts; section 224(2) requires a court to weigh the nature and extent of the conduct, any loss caused, and whether the party has been found to have engaged in similar conduct before, when deciding the actual penalty in a given case. Because each unfair term used or relied on is a separate contravention under section 23(2B), the theoretical penalty exposure for a business using several unfair terms across many customer contracts can be very large.

What happens once a term is found unfair

Where a court finds a term unfair, section 23(1) and (2) mean the term becomes void, but the rest of the contract continues to bind the parties if it is capable of operating without that term. Only a court can make a final, binding decision that a specific term is unfair; the ACCC and state and territory regulators can investigate, take compliance action and pursue penalties, but a consumer or small business believing a term in their own contract is unfair should generally raise it directly with the business first, since this article explains the general test rather than assessing any individual contract.

This page provides general legal information about unfair contract terms under the Australian Consumer Law, verified 21 July 2026. It is not legal advice about your own purchase or dispute. For advice on your situation, consult a legal practitioner admitted in the relevant Australian state or territory.

For the consumer guarantees that apply separately from a contract's own terms, see consumer guarantees in Australia. Return to the Australian Consumer Law hub for the full picture, or see who to complain to about a consumer problem if you believe a contract term may be unfair.

Frequently Asked Questions

Is an unfair contract term automatically illegal, or just void?

Both, depending on when it happened. An unfair term itself has always been void once a court finds it unfair. Since 9 November 2023, proposing an unfair term, or applying or relying on one, in a standard form consumer or small business contract is also a separate contravention of the ACL carrying a pecuniary penalty.

What is the test for an unfair contract term?

Under section 24, a term is unfair if it would cause a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party it favours, and would cause detriment if applied or relied on. All three elements must be satisfied.

What counts as a small business contract for these protections?

Since 9 November 2023, a contract is a small business contract under section 23(4) if at least one party has fewer than 100 employees, or turnover under $10,000,000 in its last income year, regardless of the dollar value of the contract itself.

What penalty can a business face for using an unfair contract term?

For a body corporate, the maximum penalty under section 224 is the greater of $100,000,000, three times the benefit obtained, or 30% of adjusted turnover during the breach period. For an individual, the maximum is $2,500,000. Each unfair term proposed or relied on counts as a separate contravention.

What happens to the rest of the contract if one term is unfair?

The unfair term becomes void, but under section 23(2) the rest of the contract continues to bind the parties if it is capable of operating without that term.

Does the unfair contract terms law apply to every contract?

No. It applies only to a standard form consumer or small business contract, as defined in sections 23(3) and 23(4). Two different provisions carve things out, and they are easy to conflate. Section 26 excludes particular TERMS from the unfairness rule: a term that defines the main subject matter, a term setting the upfront price, and a term required or permitted by another Commonwealth, State or Territory law. Section 28 excludes whole CONTRACTS, including a company constitution, marine salvage or towage, a charterparty, carriage of goods by ship, and certain payment system contracts.