In the wake of sweeping 2023 reforms to Australia’s unfair contract terms (UCT) regime, class action firms are turning their attention to newly expanded penalties and remedies, signalling a potential wave of litigation targeting unfair contract practices.

Introduction

It has been 18 months since the 2023 changes to Australia’s ‘unfair contracts’ regime introduced harsher penalties and remedies for businesses that include unfair contract terms in their contracts. These reforms have strengthened consumer protections and are likely to usher in a new era of regulatory enforcement and private litigation. With significantly increased remedies, the amendments create a heightened risk for class actions and a growing appetite among class action firms to test the boundaries of these provisions in court. Organisations offering standard form contracts are well advised to consider the implications of the reforms on their businesses and make sensible changes to rebalance contractual terms to avoid this new class action risk.

Background

Following the passing of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth), Australia’s UCT regime was overhauled, making unfair contract terms in standard form contracts illegal and introducing heavy penalties (under the Competition and Consumer Act 2010 and the ASIC Act 2001) for businesses that use such terms. The changes, which came into effect in late 2023, have altered the business and consumer landscape for standard form consumer contracts, small business contracts, and insurance contracts. 

Unlike the previous regime, where unfair terms could merely be declared void by a court and attracted no penalty, the new laws introduce substantial civil penalties, shifting the focus from compliance to deterrence. In addition, the definition of small business was significantly expanded from a business that employs less than 20 employees, with an annual turnover of less than $300,000 (or $1 million on contracts greater than 12 months in length) to one that employs less than 100 employees and an annual turn over of $10 million. These changes increase the risk to business of class action litigation, as they broaden the scope of who is protected under the UCT regime, capturing a wider range of transactions. 

Under the changes, courts gained new powers to: 

• declare void, modify, or refuse to enforce contracts to prevent likely loss or damage from UCTs;
• prevent or mitigate likely harm from unfair terms similar to those previously declared unfair;
• issue injunctions to stop parties from using or enforcing unfair terms;
• restrain individuals from entering into or relying on contracts containing unfair or similar terms;
• order the payment of compensation and redress for loss or damage suffered by a party due to the unfair term; and
• grant discretionary orders they consider appropriate to redress loss of prevent further harm. 

Implications for businesses using standard form contracts 

While the 2023 reforms have broad implications for any business using standard form contracts, a particularly significant consequence has been the opportunity they present for class action litigation firms. With unfair contract terms now applying to a significantly greater number of contracts and permitting to payment damages, enforcement is no longer limited to regulators. Plaintiff firms and litigation funders are increasingly viewing UCT breaches as fertile ground for large-scale claims. Whilst Australia is yet to see a large number of unfair contract term-related class actions on the court list, international experience suggests that such claims cannot be far behind.

What does this mean for businesses? 

For a class action to be considered viable, enough consumers need to be impacted, and the value of their loss needs to be sufficiently large to ensure a reasonable return to plaintiff law firms and, potentially, litigation funders.  Significantly, it means conduct that creates only a small amount of loss but that impacts a large number of Australian consumers might still be of sufficient interest (in other words, generate enough of a return) to justify the pursuit of a class action. For example, in an ongoing class action against one of our major supermarkets, claimants allege they were misled by illusory price promotions. While the individual loss of each consumer will likely be minimal, the class action seeks to address a widespread and recurring practice, demonstrating that claims involving minor but repeated consumer detriment can still give rise to viable and potentially successful litigation. While compensation for consumers may be small on an individual basis, the overall commercial return for plaintiff firms and litigation funders might still stack up. 

Key takeaways

For businesses operating in Australia, the message is clear: unfair terms are no longer just unenforceable; they now carry real legal and financial consequences. Proactive contract reviews and risk assessments are essential, not just to comply with the law, but to stay ahead of potential litigation and reputational risk in an increasingly assertive regulatory environment. If you believe these issues may affect your business or would like legal advice on unfair contract terms or class action risks, please get in touch with our team for tailored assistance.