Under s 23(1) of the Australian Consumer Law (ACL) (which is Sch 2 of the Competition and Consumer Act 2010 (Cth)), unfair contract terms will be void if they are contained in:

• standard form consumer contracts (entered into after 1 July 2010 or, if entered into prior to that date, were renewed, extended or varied after 1 July 2010); and

• standard form small business contracts (entered into or renewed after 12 November 2016).

Prior to the introduction of this provision into what was then the Trade Practices Act 1974 (Cth), Victoria was the only jurisdiction in Australia to have legislation dealing with unfair contract terms. By virtue of the inclusion of the provision in the ACL, unfair contract terms in every jurisdiction in Australia are void.

A consumer contract includes contracts which are for the supply of goods or services or an interest in land to an individual who is acquiring such goods, services or interest in land, wholly or predominantly for personal, domestic or household use or consumption: s 23(3). It is essentially a consumer contract the terms of which the consumer is unable to negotiate. It includes written and oral agreements.

A small business contract includes contracts which are for the supply of goods, services, or sale or the grant of an interest in land where:

• at least one party to the contract is a business that employs fewer than 20 people (not including casual employees, unless they are employed by the business on a regular and systematic basis); and

• either the upfront price payable under the contract does not exceed $300,000 ($1 million if the contract is for more than 12 months duration): s 23(4).

Contracts which are not covered by the prohibition on unfair contract terms are:

• contracts of marine salvage or towage;

• a charter party of a ship;

• a contract for the carriage of goods by ship; and

• a contract which is the constitution (as that term is defined in s 9 of the Corporations Act 2001 (Cth)) of a company, managed investment scheme or other body: s 28(1) & (3), ACL.

Standard form consumer and small business contracts for the supply of financial products and services are not covered by the prohibition in the ACL but a similar prohibition exists in ss 12BF–12BM of the Australian Securities and Investments Commission Act 2001 (Cth).

Section 15 of the Insurance Contracts Act 1984 (Cth) also provides that certain insurance contracts are not covered by the prohibitions. This does not include private health insurance contracts and certain other insurance contracts.

See What contracts are covered?

A term of a standard from consumer or small business contract will be unfair if it:

• would cause a significant imbalance in the rights and obligations of the parties under the contract;

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

• would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon: s 24(1), ACL.

In determining whether a term is unfair the court may consider any matter it thinks is relevant but must consider the contract as a whole and the extent to which the term is transparent ie expressed in plain language, legible, presented clearly and readily available to a party affected by it: s 24(2) & (3), ACL.

A term which defines the main subject matter of a contract, or sets the upfront price payable under the contract, or is required or permitted by law, will not be unfair, but only to that extent: s 26(1), ACL.

See When will a term be unfair?

Section 25 of the ACL sets out examples of unfair terms. The examples are not exhaustive and the inclusion of a term in the list does not mean that it will automatically be declared unfair and void, although the prospect of such a term being declared unfair and void is more likely than not unless it can be established that the term is reasonably necessary to protect the legitimate interests of the party relying on it or does not cause a significant disadvantage or detriment to the other party. Full details of the examples are contained in the guidance note. They include terms which give one party the unilateral right to avoid performance, amend, renew or not renew or terminate the contract, or to unilaterally determine whether the contract has been breached or to interpret its meaning.

The section also provides for the making of regulations prescribing that a term of a particular kind, or that has an effect of a particular kind, may be unfair: s 25(1)(n), ACL.

See Types of unfair terms.

Section 27(1) of the ACL provides that if a party alleges that a contract is a standard form contract, it will be presumed to be one, unless the other party proves otherwise. Section 24(4) provides that a term of a standard form consumer or small business contract will be presumed to be not reasonably necessary to protect the legitimate interests of a party, unless that party proves otherwise.

These two provisions mean that suppliers whose terms are challenged under s 23 as being unfair will bear the onus of proving that they are not.

See Who bears the onus of proving a term is unfair?

An unfair term will be void and of no effect but other terms of the contract will continue to be binding, if capable of operating without the unfair term. This means that unfair terms cannot be relied upon or applied by a supplier. Any attempt to do so can be challenged by consumers or by the Australian Competition and Consumer Commission or a state or territory consumer affairs regulator: s 23(2) , ACL.

See What is the effect of a finding that a term is an unfair contract term?