Unfair Contract Law Changes and Penalties – Effective from 9 November 2023

The Bill to reform Australia’s unfair contract law was passed in November 2022. The new unfair contract law will take effect from 9 November 2023. Therefrom from 9 November 2023, it is an offence to enter into a standard form consumer contract or small business contract that contains an unfair term. It is also an offence to seek to rely on an unfair term in a standard form contract or small business contract. Substantial penalties will apply if a business breaches the new unfair contract law.

Members are reminded that the new unfair contract law may have a significant impact on your business or you as an individual if you use standard contracts. Members who are using standard contracts are encouraged to seek legal advice in relation to the impact of new unfair contract laws to your business sooner rather than later.

What is considered an unfair contract term?

A contract term is unfair if:

• the term would cause a significant imbalance in the parties’ rights and obligations 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
• the term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Australian Consumer Law, Schedule 2, section 25 provides a list of examples of unfair terms, including:

• a term that permits one party (but not another party) to avoid or limit performance of the contract;
• a term that permits one party (but not another party) to terminate the contract
• a term that penalises one party (but not another party) for a breach or termination of the contract
• a term that permits one party (but not another party) to vary the terms of the contract
• a term that permits one party to vary the upfront price payable under the contract without the right of another party to terminate the contract
• a term that permits one party unilaterally to vary the characteristics of the goods or services to be supplied under the contract
• a term that permits one party unilaterally to determine whether the contract has been breached or to interpret its meaning
• a term that limits one party’s vicarious liability for its agents
• a term that permits one party to assign the contract to the detriment of another party without that other party’s consent

The table below contains a summary of the changes.

For any members who use standard contracts, MBA encourages you to conduct a thorough review of all your standard contracts to identify any contract terms that may pose a risk of being unfair.

If you need assistance in reviewing your standard contracts or advice on whether a contract term is unfair, please contact our Legal Team on (02) 6175 5900.