Unfair contract terms: What you need to know

If you run or work for a small to medium-sized company, chances are you’ve signed more than a few “take it or leave it” contracts. You know the type - terms are set, there’s no room to negotiate, and you’re expected to sign on the dotted line. But did you know there are laws designed to protect businesses like yours from unfair contract clauses?

These protections come under the Unfair Contract Terms (UCT) regime in the Australian Consumer Law. In 2023, the regime was strengthened to give small and medium businesses more protection when dealing with standard form contracts. If you’re not across the details, here’s what you need to know - and why it matters to your business.

What is the UCT Regime?

The UCT regime is designed to stop big players from slipping unfair terms into contracts where one party (usually the smaller one) doesn’t get much say.

You’ll often see these contracts in your industry - especially when smaller contractors are working with major national or multinational companies or large project developers.

When Does It Apply?

The UCT regime only applies if these three conditions are met:

1. It's a standard form contract. That generally means:
   • One party prepared it;
   • There was no genuine opportunity to negotiate;
   • It's presented as "take it or leave it."
2. It's a small business or consumer contract. That means, at least one party has:
   • fewer than 100 employees;
   • annual turnover is less than $10 million; or
   • an upfront contract price is less than $5 million.
3. It contains an unfair term.
   • A term is likely fair if it creates a significant imbalance between the parties, isn't necessary to protect the interests of the party it benefits, and would cause harm if enforced.

What Makes a Term Unfair?

Examples of unfair terms include those that:

• Let only one party change the contract terms;
• Allow one party to cancel or extend the contract without reason;
• Limit one party's responsibilities but not the other's; and
• Impose unreasonable penalties or deadlines.

These kinds of clauses can put small businesses at a disadvantage and shift risk unfairly.

What Happens if a Term is Unfair?

If a court finds a term to be unfair, it’s considered void and can’t been forced. On top of that, companies can face big penalties, up to $50 million for each breach under the amended 2023 laws.

Using the UCT Regime to Your Advantage

The UCT regime isn’t just legal jargon, it’s a tool you can use to protect your business and negotiate better contracts. Here’s how.

    1. Before You Sign—As a Negotiation Tool

Pointing out that a clause may be considered unfair under the UCT regime can give you more leverage before signing a contract. Big companies are more aware of the risks now, especially with penalties in the millions, so they may be more open to reasonable changes.

It’s easier, and cheaper, to vary the terms of a proposed contract before it becomes a problem.

    2. After a Dispute—As a Legal Option

If you're already in a contract and a dispute arises, the UCT regime could help. For example, we recently advised a drilling contractor in a dispute with a mining company. The contract said that unless the contractor gave notice of a claim within 30 days of becoming aware of it, they couldn’t pursue the claim at all.

Our client missed that deadline. But we looked at whether the clause was unfair—after all, it gave one party a strict and burdensome obligation that didn’t apply to the other. If a court agreed, the term could be seen as having no operation, allowing the claim to proceed. It’s not a guaranteed solution, but it may give you a legal avenue when other options are closed.

It’s also worth noting that the Building and Construction Industry (Security of Payment) Act in Western Australia prevents certain restrictive clauses like this in construction contracts, as do the similar legislation in other states. So depending on your work, you might have additional protections.

Final Word

In industries like mining, where small and medium companies often deal with much larger clients, understanding your rights under the UCT regime is more important than ever.

Don’t assume that just because something is in a contract, it’s fair or enforceable. If a term feels one-sided or puts your business at risk, it might be worth questioning.

Legal advice is always recommended if you’re unsure.

For more, contact Aaron McDonald, Founding Director at Pragma Lawyers at aaron@pragma.law.