Do You Know About Unfair Contract Terms?

If you sell to consumers or small businesses in Australia, the terms in your contracts aren’t just “fine print” - they’re regulated by law. The unfair contract terms (UCT) regime under the Australian Consumer Law (ACL) and the ASIC Act (for financial services) makes certain one‑sided terms unlawful in standard form contracts.

Since late 2023, the rules have tougher penalties and a wider reach. That means it’s more important than ever to get your contracts right - and to know what to do if you’re handed someone else’s unfair T&Cs to sign.

In this guide, we’ll explain how the UCT rules work, what to look out for, and practical steps to make your contracts fair, enforceable and compliant.

What Are Unfair Contract Terms Under Australian Law?

Under the ACL, a term can be “unfair” if all three of these things are true:

• It creates a significant imbalance between the parties’ rights and obligations.
• It’s not reasonably necessary to protect the advantaged party’s legitimate interests.
• It would cause detriment (financial or otherwise) to the other party if relied on.

Courts also consider the contract as a whole and whether the term is transparent - plain language, legible, clearly presented and available before you agree.

Some terms are excluded from the UCT rules, including the “main subject matter” of the contract, the upfront price (if disclosed clearly) and any terms required or expressly permitted by law.

The UCT regime sits alongside broader consumer law rules, like the prohibitions on misleading or deceptive conduct and unfair practices. Even if a term squeaks past those general rules, it can still be an unfair contract term if it goes too far.

Which Contracts Are Caught By The UCT Regime?

The unfair contract terms rules apply to standard form contracts with:

• Consumers; and
• Small businesses (using expanded tests based on headcount and turnover).

A “standard form” contract is one that’s offered on a take‑it‑or‑leave‑it basis - there’s usually no real opportunity to negotiate, it’s pre‑prepared, and it’s used for many customers or counterparties. Think website terms, sign‑up forms, order forms and template service agreements.

The scope was broadened in 2023, so many B2B contracts that previously fell outside the rules now qualify. If you deal with sole traders, partnerships or companies with modest employee numbers or turnover, you should assume the UCT regime may apply unless you’ve had tailored legal advice.

How Do You Spot An Unfair Term?

Unfair terms often give one side big rights while limiting the other side’s practical options. Red flags include one‑sided termination rights, price increases without a genuine right to cancel, or clauses that shift all risk onto the weaker party. Here are common examples to watch for.

One‑Sided Termination Or Variation

• A supplier can terminate “at any time for any reason” but the customer can’t terminate unless there’s a serious breach.
• You can change key terms or prices unilaterally without giving reasonable notice and a right to walk away.

Unlimited Liability Restrictions

• Liability is excluded for anything and everything, including where the supplier is negligent or the loss is foreseeable.
• Remedies are restricted to what the supplier chooses, with no recourse if the supplier fails to fix the issue.

Liability caps are important, but they need to be proportionate and carefully drafted. If you’re using or agreeing to these, review how a limitation of liability clause is framed and whether it preserves mandatory consumer guarantees.

Broad Indemnities And Risk Shifting

• The other party must indemnify you for losses you cause, or for matters beyond their control.
• Indemnities that are unlimited in time and scope with no fault requirement.

Payment And Remedies Tilted One Way

• Excessive or non‑genuine liquidated damages for cancellation or delay.
• Strict “no refunds, ever” terms that cut across the ACL’s consumer guarantees.
• Keeping large “non‑refundable deposits” even if you suffer little or no loss (see how non‑refundable deposits can go wrong).
• Late fee structures that punish rather than reflect reasonable costs (consider the rules around late payment fees and fairness).

Set‑Off And Withholding Rights

• The customer is barred from set‑off in all circumstances, even where you clearly owe them money or a credit.

Absolute bans can be risky under the UCT regime. Calibrated wording - see more on set‑off clauses - helps keep things balanced.

Other One‑Sided Terms

• Auto‑renewal with short cancellation windows and no reminders.
• Assigning the contract freely to anyone, while the other party is locked in.
• Unilateral rights to decide whether the contract has been breached.
• Harsh evidence or “entire agreement” clauses that try to block reasonable reliance on what was said or written pre‑contract.

What Happens If You Use An Unfair Term?

Unfair terms aren’t just void - they can now be unlawful, with significant civil penalties for proposing, using or relying on them. Regulators can also seek orders to prevent future use, vary contracts, and provide redress to affected customers.

Each unfair term in each contract can count as a separate contravention, and using a standard form with many customers can multiply risk quickly. This is why the 2023 reforms were a big deal for SMEs and startups using templates.

Enforcement is active. The ACCC leads for most industries, and ASIC handles financial services and products. Businesses should expect scrutiny where customer harm is likely or where standard T&Cs are clearly one‑sided.

How Do You Make Your Contracts UCT‑Safe?

Good news: you don’t have to give up legitimate protections. The goal is balance and transparency - not leaving yourself exposed. Here’s a practical approach you can apply right away.

1) Audit Your “Standard Form” Templates

List every document you routinely present on a take‑it‑or‑leave‑it basis: online terms, order forms, onboarding packs, proposal templates, service agreements and renewals. Prioritise customer‑facing documents and any contracts used at scale.

2) Identify And Re‑Draft Red Flags

Work through the examples above and mark clauses that could create a significant imbalance. Consider whether each restriction or remedy is reasonably necessary to protect a real risk - and whether you can soften the edges without losing that protection.

High‑impact clauses to review include unilateral variation, termination, indemnities, liquidated damages, renewal and liability caps. If you’re unsure how to calibrate these for your model, a focused UCT review and redraft can save a lot of time (and risk).

3) Add Transparency And Escape Hatches

• Give reasonable notice for price and term changes and allow termination if the change is material.
• Signpost key risks in plain English (for example, early termination fees) and avoid burying critical details.
• Use examples or summaries near complex provisions to improve clarity.

4) Balance The Remedies

• Offer a meaningful right to terminate for prolonged breach or major changes.
• Scale caps and liquidated damages to price, scope and foreseeable loss.
• Preserve mandatory rights (like consumer guarantees) and make that clear in your wording.

5) Keep Clause Mechanics Proportionate

• Limit indemnities to what the other party can control or cause.
• Tailor liability limitations so they don’t exclude negligence where that would be unfair or unlawful.
• Use reasonable timeframes for notices, acceptance and cure periods.

6) Update Your Contracting Process

• Make full T&Cs available before purchase or sign‑up, and require active acceptance.
• Send renewal reminders well before auto‑renewal and explain how to cancel.
• Keep records of when and how terms were provided, accepted and varied.

7) Train Your Team

Sales, customer success and accounts teams should know which promises are allowed, which need approvals, and when to escalate a negotiation point for legal review. Consistency between sales material and contract wording reduces UCT and ACL risk.

Which Clauses And Documents Deserve Extra Attention?

Some documents and clauses are “UCT hotspots.” If you use or sign these regularly, put them at the top of your review list.

• Customer Contract: Your core service or supply terms should be clear on scope, deliverables, timelines, payment and a balanced set of remedies.
• Terms of Trade: Often used as standard form T&Cs - ensure variations, renewals, disclaimers and default remedies are even‑handed and transparent.
• Cancellation, Deposits And Fees: Make sure deposits are reasonable and tied to genuine loss, and structure fees in line with ACL expectations on fairness (compare your approach with the risks around non‑refundable deposits and late payment fees).
• Risk Allocation: Calibrate indemnities, warranties and limitation of liability to your offering. Avoid blanket exclusions that go beyond what’s reasonably necessary.
• Commercial Payment Protections: Security mechanisms (like guarantees or bank guarantees) should be proportionate and clearly explained; overly aggressive settings can be challenged under UCT and general ACL rules. If you rely on set‑off or restrictions on it, revisit your approach to set‑off clauses.

If you’re refreshing your templates, it’s a good moment to align other compliance items too - for example, ensuring your refund language matches the ACL and that your advertising claims align with the general rules against misleading conduct.

How Do You Negotiate Unfair Terms You’re Given?

Small businesses are often handed supplier or platform terms that are non‑negotiable. Even then, you usually have options:

• Ask for a “small business” version of the terms (many vendors now have one).
• Request specific carve‑outs: reasonable notice of changes, mutual termination rights, capped liability, fairer indemnities.
• Propose practical workarounds, like a right to terminate without penalty if prices increase beyond a threshold.
• Keep a paper trail. If a dispute arises, clarity on what was promised and when the terms changed can be critical.

If the other side refuses and the term appears clearly unfair, you can raise UCT concerns directly. Pushing for proportionate, transparent settings is not only good governance - it’s consistent with the law’s objectives.

If you want a quick “traffic light” view of your counterpart’s template (what to accept, push back on or escalate), our team can provide a targeted risk review and suggested fallback wording.

Frequently Asked Questions

Do The UCT Rules Apply To My Business If I Only Sell B2B?

Probably, if you deal with small businesses and use standard form contracts. The post‑2023 regime captures many B2B agreements that previously slipped through. Get a quick sense check if you’re unsure.

Are “Waivers” Or “No Liability” Clauses Automatically Unfair?

No, but sweeping disclaimers and “no liability for anything” wording are high‑risk. Clauses must be transparent, proportionate and consistent with mandatory consumer rights. If you use waivers, treat them as part of a balanced approach, not a silver bullet.

If A Term Is Unfair, Is My Whole Contract Invalid?

Usually the unfair term is void (or unlawful to use), but the rest of the contract can continue to operate. However, regulators can seek broader orders, and penalties may apply for proposing or relying on unfair terms.

How Often Should I Review My Templates?

At least annually, or whenever you change your offering, pricing model or risk profile. Any time you roll out a new product, subscription plan or sign‑up flow, include a contract review in that project.

Key Takeaways

• Unfair contract terms law applies to standard form contracts with consumers and many small businesses in Australia, with tougher penalties from 2023.
• A term is likely unfair if it creates a significant imbalance, isn’t reasonably necessary to protect legitimate interests, and causes detriment when used.
• High‑risk clauses include one‑sided termination or variation, sweeping liability exclusions, broad indemnities, punitive fees and absolute set‑off bans.
• Compliance is about balance and transparency: provide notice of changes, offer proportionate remedies, and preserve mandatory consumer rights.
• Audit your templates, re‑draft red flags, and align key documents like your Customer Contract and Terms of Trade with the UCT regime.
• Targeted legal help - for example a focused UCT review and redraft - can quickly de‑risk your contracts without weakening genuine protections.

If you’d like a consultation on unfair contract terms and updating your standard form agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.