What changed

Since 9 November 2023, including an unfair term in a standard form contract with a consumer or small business has been prohibited, not merely void. Courts can now impose civil penalties for each unfair term, and each term in each contract can be a separate contravention. For companies, the maximum penalty is the greater of $50 million, three times the benefit obtained, or 30 per cent of adjusted turnover during the breach period.

The amendments also widened who is protected. A contract is now a small business contract if one party employs fewer than 100 people or has annual turnover under $10 million, and the previous cap on the contract’s upfront price is gone. For many suppliers, that brings most of their customer base inside the regime.

What makes a term unfair

The test itself has not changed. A term is unfair if it would cause a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party it benefits, and would cause detriment if relied on. Transparency matters: a term buried in dense text or expressed in unclear language is more likely to be found unfair.

The terms regulators return to most often are one-sided rights to vary price or scope, termination rights available to only one party, indemnities and limitations of liability that run in one direction, automatic renewals with narrow exit windows, and clauses that let one party decide whether the other has breached.

Standard form is a wide net

The regime applies only to standard form contracts, but that phrase covers more than many businesses assume. A contract is likely to be standard form where one party prepared it, offered it largely on a take-it-or-leave-it basis, and uses it repeatedly. Letting a customer negotiate the price or the start date does not take the rest of the document outside the regime, and courts are now directed to consider whether the same contract has been used before.

Where the risk actually sits

The exposure is rarely in the main customer agreement, which has usually been reviewed. It sits in the documents nobody owns: online terms of trade, quote acceptance forms, purchase order terms, supplier onboarding packs and the renewal letter a sales team adapted three years ago. Each is used at volume, and each use can carry its own penalty.

What we recommend

Start with an inventory of every standard form document in use, who issues it, and how many counterparties are likely to be small businesses. Then review each against the unfairness test, focusing on variation, termination, liability and renewal. Where a one-sided right is genuinely needed, record why, narrow it to what is necessary, and make it prominent rather than buried.

Finally, put the documents under version control and give someone ownership of them. The cost of a review is modest. The cost of discovering that one clause has been included in several thousand contracts is not.