Update: Unfair Contract Terms Regime

Since 09 November 2023 the Unfair Contract Terms Regime began to impose significant penalties on unfair contract terms in standard form contracts.

The Unfair Contract Terms regime applies to consumer and small business contracts. For all contracts signed, renewed or varied on or after 09 November 2023, the changes relevant in deciding whether a contract is a standard form contract will apply to the whole contract.

Are your contracts unfair? 

To ascertain whether the terms of the contract are unfair, the courts will look at whether the term(s):

• is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term;

• will cause a significant imbalance in the parties’ rights and obligations; and

• would cause detriment (financial or otherwise) if relied on.

The courts must consider the contract as a whole and the transparency of the term in determining if it is unfair.

Common Unfair Terms 

Section 25 of the Australia Consumer Law contains a list of examples of unfair contract terms commonly found in standard form contracts:

(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 unilaterally to determine whether the contract has been breached or to interpret its meaning;

and many more.

Pecuniary penalties can be imposed for each contravention of the prohibitions to it is important that proactive action is taken by reviewing contracts to ensure that the contract does not contain unfair contract terms and amend (or remove) any unfair terms where necessary to reduce the risk of penalties or court proceedings.

Key takeaways

In light of the changes, it is critical to be aware of unfair terms that may be inserted in any property contract when negotiating such contracts. To gain a more comprehensive understanding of how the discussed changes might impact you, please contact our people.

Ron Zucker 0410 590 111

Eollyn Cortes 0478 727 395

Sagang Chung 0431 435 333

Julia Zou 0426 670 202