How the unfair contract terms regime is impacting the Australian construction industry

At the time there was much doomsday commentary about the voiding of subcontract terms and significant penalties to be applied by the regulator. But now that the dust has settled, has the sky fallen in?

Not really.

However, there remains significant uncertainty in the construction industry about which terms might be deemed ‘unfair’ within the meaning of the UCT legislation. The smattering of judicial authority we have had on this point has not really helped; in fact, it has perhaps exacerbated the uncertainty as similar terms may either be ruled ‘unfair’ or ‘not unfair’ depending on the circumstances of the transaction and interpretation of the court.

So far, we have seen few construction-specific cases reaching final determination on allegations of UCT unfairness, while regulatory action taken by the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission has not – yet - been specifically directed at the construction industry.

A lack of construction-specific judicial guidance might be explained by construction companies taking a proactive approach to compliance in amending their standard form contract terms. Or, perhaps, we simply have not seen UCT challenges reaching formal judgment yet due to lengthy court proceedings or pre-trial settlements.

Whatever the reason, our experience has been that the expanded UCT regime has subtly changed procurement practices in construction.

Contractors are generally aware of the potential risk presented by UCT legislation and are approaching standard form contract terms and subcontractor procurement processes accordingly.

From a regulatory perspective, ACCC and ASIC’s current priorities seem to be focused on individual consumer, rather than small business, protection.

However, there are lessons that can be learned each time a new decision is handed down in relation to UCT.

The expanded unfair contract terms regime

As a refresher, the Australian Consumer Law sets out a broad prohibition on ‘unfair’ terms in standard form contracts with consumers and small businesses.

On 9 November 2023, the UCT legislation was amended to significantly expand what constitutes a small business. Previously, the UCT legislation only applied to standard form contracts with businesses with fewer than 20 employees and with a maximum payment of A$300,000 upfront or A$1,000,000 for contracts over 12 months’ duration.

The 2023 amendments removed the contract value threshold and applied the legislation to any standard form contract with a business that has fewer than 100 employees, or a yearly turnover of less than A$10 million.

If the UCT legislation applies and a term is declared to be unfair, a court has broad powers to make orders to declare void, to vary or to refuse to enforce any or all contract provisions. Companies that propose or seek to rely on unfair terms may also be exposed to significant financial penalties. ACCC’s compliance and enforcement priorities for 2025-26 include unfair contract terms in consumer and small business contracts, with a focus on harmful cancellation terms, including those associated with automatic renewals, early termination fee clauses, and non-cancellation clauses. 

The ASIC Act replicates the amendments under the Australian Consumer Law, with slight differences.

What we have learned since the legislation took effect?

While there has been little construction-specific judicial guidance, there have been some case law learnings since we published our last article in 2024.

Tomasso v IG Markets Pty Limited

A recent Supreme Court of Western Australia decision declared void in its entirety a one-sided clause designed to protect IG Markets against losses caused by inadvertent errors, exposing the company to $5.5 million in damages.

ASIC v HCF Life Insurance Company Pty Limited

In October 2024, the Federal Court found a pre-existing condition clause from a HCF Life health insurance policy was not an unfair contract term. 

The clause gave HCF Life a right to deny coverage if a customer did not disclose a pre-existing condition before entering the contract, even where a diagnosis had not been made or the customer was unaware of the condition.  Section 47 of the Insurance Contracts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the consumer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

The pre-existing condition clause was found liable to mislead the public in contravention of the ASIC Act.  However, despite this finding, the courts considered the term was not an unfair contract term because:

• there was no “significant imbalance” because of the existence of the customer protection under the ICA, despite the customers not knowing, and HCF Life not explaining, that this protection existed; and
• the term was “transparent” because it was clear and legible. 

Mr Justice Jackman importantly noted that the UCT legislation is concerned with unfair ‘terms’ and not unfair ‘conduct’ when handing down this decision. 

ASIC filed an appeal in July 2025.

ASIC v Auto & General Insurance Company Limited

ASIC appealed another decision of the Federal Court in relation to a term in an insurance policy issued by Auto & General Insurance Company Limited, but its appeal was dismissed by the Full Federal Court in June 2025.

The term in question required policy holders to notify Auto & General if ‘anything’ changed about their home or contents.  ASIC was concerned that the policy was unclear, broader than the obligations under the ICA and could mislead or confuse policyholders as to what they need to disclose.  However, the court agreed with the primary judge’s decision that the term was not unfair.

The court also focused on the ameliorative effect of protections in the ICA, the fact that policies clearly informed insured persons of their legal rights and that the proper construction of the notification clause gave it appropriate commercial meaning.

Interestingly, the full Federal Court said if a clause lacks transparency in circumstances where transparent alternatives are available, this may support a finding that the term was not reasonably necessary to protect a party’s legitimate interests.

Mable Technologies admits to breaching UCT

In 2025, the ACCC took regulatory action against aged care support platform Mable Technologies Pty Ltd. 

In a court-enforceable undertaking, Mable admitted to breaching the UCT legislation.

The undertaking prohibits Mable from entering into certain terms with clients and support workers, requires Mable to provide clearer information about terms and establish a UCT compliance program. 

The UCTs were in place between 9 November 2023 and 22 August 2024 and included terms that:

• automatically approved invoices unless disputed within 24 hours, with no contractual right to opt out or dispute the invoice once approved;
• imposed a $5,000 minimum penalty for clients or support workers who continued care arrangements together within 12 months of leaving the platform;
• gave Mable the ability to change some of its fees and terms without reasonable notice; and
• limited Mable’s liability for claims and losses

ASIC v PayPal Australia Pty Ltd

On 4 July 2024, the Federal Court found that a term in PayPal Australia Pty Ltd’s standard form contracts with small businesses was an unfair contract term.

This decision reinforces the importance of transparency and fairness in standard form contracts. It signals that terms placing disproportionate burdens on small businesses, especially where the service provider is better positioned to detect errors, are likely to be scrutinised and invalidated under the UCT regime.

The relevant term entitled PayPal to retain any fees or charges that PayPal erroneously charged unless the account holder notified PayPal in writing of any errors or discrepancies within 60 days of the fee appearing on the account holder's account statement or account activity information (the Fee Error Term). 

The Federal Court declared that the Fee Error Term was unfair for a number of reasons, including:

• the Fee Error Term caused a significant imbalance in the parties’ rights and obligations arising under each small business contract;
• PayPal did not seek to rebut the presumption in section 12BG(4) of the ASIC Act (that the Fee Error Term was not reasonably necessary in order to protect the legitimate interests of PayPal); and
• the Fee Error Term would have caused detriment to small businesses if PayPal had relied on it as, if the small businesses failed to notify PayPal in writing of any wrongly charged or overcharged fees within 60 days, the Fee Error Term permitted PayPal to retain any such fees. In this scenario, the small businesses would have lost the benefit of the amount which had been wrongly (through no fault of its own) charged to its account.

In relation to transparency, the parties agreed that the Fee Error Term was legible, in the same size font as the other terms, and had a heading in bold, but was not otherwise drawn to the attention of the small business entering into a small business contract.  

Having regard to the nature of the term and the length and complexity of the documents, and the fact that the term was not highlighted or otherwise drawn to the attention of the user, the Federal Court concluded that there was, to some extent, a lack of transparency.

What this all means for construction contractors

By applying the legislation and case law in the construction context, we consider that the following types of terms may be vulnerable to being challenged as unfair contract terms:

• one-way exclusions or caps on liability or one-way exclusions of liability for indirect and consequential loss;
• unilateral rights for one party to terminate for convenience at short notice, without appropriate compensation being payable to the terminated party;
• open-ended or automatic renewal terms without the opportunity for the other party to cancel or renegotiate the terms or price;
• notice-based time bars, particularly if unreasonably short or uncertain;
• obligations for one party to comply with extraneous documents or obligations that have not been disclosed or provided – for example, an obligation to comply with a policy of the client, or to comply with some other contract entered into by the client;
• unilateral rights to determine (on a final and binding basis) the meaning of the contract, whether the contract has been breached or to resolve ambiguities;
• unilateral terms to vary the scope of works, without appropriate provision for the price, time and other impacts of the change;
• unilateral rights to vary payment terms, and unilateral rights to vary contract terms or conditions; and
• one-sided indemnities, or ‘on demand’ indemnities for breach generally, which give rise to strict liability for certain events or matters without the contractor necessarily being at fault.

The following factors should also be taken into account when drafting contracts:

• complex or poorly worded risk allocation clauses that are difficult to understand; and
• contracts that are difficult to read (e.g. tiny font sizes, illegible text, very long sentences/paragraphs).

Ultimately, our view remains that while UCT presents a material legal and financial risk to construction contractors, that risk can be mitigated through careful drafting of standard form contracts that are intended for use with individuals or small businesses.

When drafting these contracts, contractors should:

• adopt a careful and considered approach to any terms which might create a significant imbalance of the parties’ rights and obligations – including rights and obligations that might unreasonably favour them. Consider whether the relevant clause is really necessary, and, if so, whether more balanced drafting might adequately protect the contractor’s legitimate commercial interests; 
• consider whether unilateral rights and obligations should be reciprocal or, if not, whether they are proportionate and balanced (including considering whether any protections to the counterparty might existing in legislation);
• consider the consequences of the exercise of unilateral powers: a unilateral power that grants an appropriate remedy to the other party, for example a right to be made financially whole after a unilateral termination for convenience, may be less vulnerable to challenge through the courts;
• consider whether any potentially unfair terms are protecting a ‘legitimate commercial interest’. If so, consider if other, less burdensome options are available to protect that legitimate commercial interest: be prepared to justify why a particular clause is necessary, especially if it unreasonably disadvantages the other party; and
• ensure that terms are clear, legible, and transparent, i.e. clearly disclosed and explained. Prominent disclaimers and plain English drafting might assist.

With all that being said, we still have limited judicial guidance as to how the UCT legislation will apply in the specific context of the construction industry. For example, would a substantively unfair subcontract term that is ‘back-to-back’ with an equivalently unfair term in the head contract be protected by the ‘legitimate commercial interest’ defence?

So, while it is currently mostly ‘business as usual’ in the industry – the answer to that, and other key questions, will have a material impact on how our practice might change going forward.

Co-written by Thomas Coleman of Pinsent Masons.