Unfair contract terms

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What is a contract?

A contract:

  • is an agreement between two or more parties, intended to be legally enforceable
  • can be written or verbal, or both
  • has terms and conditions.

A contract is created when one party makes an offer and the other party communicates an intention to accept it.

You can enter a contract by:

  • signing a document
  • taking something from a store shelf and paying for it at the check-out counter
  • posting a letter of acceptance
  • clicking an ‘I agree’ button on a web page.

Some contracts must be in writing (for example, a contract to sell land or a lay-by contract).

The terms and conditions of a contract make up the agreement of the parties, and their rights and responsibilities. The terms can be either:

  • spelled out (set down in writing or expressed verbally)
  • implied (either by law or as necessary to make sense of the agreement).

Before entering a contract

  • Read a written contract carefully. If you do not understand it, get advice from a legal practitioner before you sign.
  • Protect your own interests. Ask for conditions to be added, changed or removed.
  • Make sure details of the contract meet your requirements and reflect your understanding of the agreement.
  • Insist on an escape clause if the contract requires you to do something you are uncertain about.
  • Remember that when you have signed, the contract becomes a legal document and can be difficult to cancel without penalty.

Help with contracts 

In helping consumers with an enquiry, we may ask to see any contracts or other documents they have signed.

However, we cannot review contracts or documents to ensure they comply with legislation; for this, you should seek legal advice. The Law Institute of Victoria (LIV) can help with this. Visit Find your lawyer - LIV website.

Unfair contract terms

National laws for unfair contract terms

The Australian Consumer Law (ACL) bans businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses. Penalties can be as high as:

  • $50 million for businesses
  • $2.5 million for individuals.

Businesses must ensure standard form contracts for products, services, or the sale or grant of interest in land comply with the ACL.

A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis.

The ACL protects consumers against contract terms that:

  • would cause a significant imbalance in their rights and obligations under a contract
  • are not reasonably necessary to protect the business, and
  • would cause detriment (financial or otherwise) to a consumer.

The protections also apply to small business contracts entered into or renewed after 12 November 2016 where:

  • at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 people (including casual employees employed on a regular and systematic basis), and
  • the upfront price under the contract does not exceed $300,000, or $1 million if the contract is longer than 12 months.

If a contract is varied on or after 12 November 2016, the law applies to the varied terms.

Examples of unfair contract terms include terms that:

  • allow one party, but not another, to change the contract
  • limit a party’s rights to sue another party
  • avoid or limit liability for negligence
  • allow one part, but not another, to solely determine if the contract has been breached, and
  • penalise one party (but not another) for a breach or termination of the contract.

Exclusions apply to terms in consumer contracts or small business contracts to the extent that the term:

  • defines the main subject matter of the contract
  • sets the upfront price payable under the contract, or
  • is a term required, or expressly permitted, by Commonwealth, state or territory law.

Exclusions also apply to contracts that are:

  • shipping contracts
  • insurance contracts regulated under the Insurance Contracts Act 1984 (Cth)
  • the constitution of a company, managed investment scheme or other kind of body.

Only a court can decide if a term in a consumer contract is unfair. If a court finds a term is unfair, that term is treated as if it never existed. If the contract can operate without the unfair term, it will still be binding. Any party to the contract can apply to a court for such a determination.

For more information, download:

Victorian unfair terms laws for contracts entered before 1 July 2010

Contracts created between 9 October 2003 and 30 June 2010 in Victoria are subject to Part 2B of Victoria’s Australian Consumer Law and Fair Trading Act 2012 , but any terms changed after 1 July 2010 are subject to the national laws.

For more information, download the guidelines to Victoria’s unfair contract terms laws for the above dates: Preventing unfair terms in consumer contracts: guidelines for businesses (PDF, 596KB) - guidelines based on Victoria’s unfair contract terms laws, October 2003-June 2010.

Monitoring and enforcement

We use our unfair terms compliance program to:

  • promote and encourage fair and balanced trading practices
  • encourage and support transparent practices in the marketplace.

Resolve your dispute or complaint

If you are having a dispute with a store or seller, view Resolve your problem or complaint