
Used under a Creative Commons Licence
Unfair contract terms – how could they affect you?
If you run a business in Australia—whether large or small —you need to be aware the unfair contract terms laws.
They apply when you use or are given what’s called a standard form contract—the kind where one party sets all the terms and the other has little or no say. In other words, it’s a “take it or leave it” situation.
These contracts are everywhere, from supply and service agreements to online terms and conditions. If you sign or issue these types of contracts, it’s important to know what the law says and what could happen if you include terms that aren’t fair.
Since 9 November 2023, using or even proposing an unfair contract term can attract serious penalties. Businesses can be fined up to $50 million—or more depending on their turnover—and individuals, including directors, can face fines of up to $2.5 million. The laws are designed to protect small businesses and consumers, so it’s crucial to ensure your contracts are fair and easy to understand.
Small business?
The unfair contract terms laws apply to contracts with small businesses—so it’s important to know if that includes you. A “small business” is any business with fewer than 100 employees or an annual turnover under $10 million, which covers the vast majority of businesses in Australia.
Standard form contract?
These laws apply specifically to standard form contracts which are prepared by one party and offered on a “take it or leave it” basis, where the other party has little or no real chance to negotiate.
You’ll commonly find them in industries like insurance, telecommunications, finance, tech, and franchising—and our firm finds that they can also appear in areas like retail, professional services, online platforms, and even supply or distribution agreements.
Is the contract really ‘Unfair’?
A court will declare a term unfair if it:
- Causes a significant imbalance in the parties’ rights and obligations;
- Is not reasonably necessary to protect the legitimate interests of the advantaged party; and
- Would cause detriment (financial or otherwise) if relied on.
Transparency is crucial but not determinative. Even a clearly worded term can be unfair if it meets the above criteria.
Key Developments and Lessons from Recent Cases
Recent court decisions show how the unfair contract terms laws work in real life—and how carefully judges look at each case.
One case involves international travel and cruise contracts, while another relates to digital payment services. A third deals with insurance policies and disclosure obligations. Together, they show that unfair terms can appear in a wide range of industries—and that context really matters.
Karpik v Carnival plc [2023] HCA 39 (The Ruby Princess Case)
In this case, the High Court confirmed that Australia’s unfair contract terms laws can apply even to overseas contracts. Carnival plc, the company behind the Ruby Princess cruise, had terms in its contract that tried to stop passengers from joining a class action (which is when a group of people with the same complaint take legal action together). The contract also said that any legal disputes had to be handled in the United States. The Court found that banning class actions was unfair because it gave too much power to the company and wasn’t clearly explained. The US-only rule wasn’t officially declared unfair, but the Court gave strong reasons for not enforcing it.
Read the judgment: Karpik v Carnival plc [2023] HCA 39
ASIC v PayPal Australia Pty Ltd [2024] FCA 637
PayPal had a contract term that said if customers didn’t report any mistakes in their charges within a short time, they would be taken to have accepted the charges—even if they hadn’t seen them yet.
The Court found this rule was unfair because it expected too much from customers and wasn’t clearly explained. PayPal didn’t fight the decision.
Read the judgment: ASIC v PayPal Australia Pty Ltd [2024] FCA 637
ASIC v Auto & General Insurance Company Ltd [2024] FCA 272 and the Appeal
ASIC argued that an insurance policy term—requiring customers to tell the insurer if anything changed—was too vague and could unfairly lead to loss of cover. But the Court said the clause wasn’t unfair when read in full context, especially since the insurer had stopped relying on it and the law already offered some protection to customers.
Read the judgment: ASIC v HCF Life Insurance Company Pty Ltd [2024] FCA 1101
Takeaways
As a business, whether you’re issuing or signing standard form contracts, you’re probably covered—and that means you need to tread carefully.
The penalties aren’t just about a clause being thrown out anymore—they can now mean serious fines, both for companies and individuals so getting legal advice is so important. A copy-paste job—especially from older or non-compliant contracts—can actually do more harm than good.
At Sharon Givoni Consulting, we specialise in turning Legalese into Legal Ease®—which means we take the hard-to-read legal stuff and explain it in plain English so you actually understand what you’re signing or sending out.
If you’re unsure whether your contracts are up to scratch, now’s the time to find out. Let’s make the law work for you—not against you.
Further Reading and Resources:
ACCC – Unfair Contract Terms: ACCC Unfair Contract Terms
https://consumer.gov.au/sites/consumer/files/2016/05/0553FT_ACL-guides_ContractTerms_web.pdf
ASIC – Unfair Contract Term Protections: ASIC UCT Protections
https://www.asic.gov.au/about-asic/what-we-do/our-role/laws-we-administer/unfair-contract-term-protections-for-small-businesses/
Please note the above article is general in nature and does not constitute legal advice.
Please email us info@iplegal.com.au if you need legal advice about your brand or another legal matter in this area generally.