The expansion of Australia’s unfair contracts regime means it’s more important than ever for businesses to call on expert insurance advice when entering into contracts with third parties.
This is something global toy distributor company Hunter Products found out when working through a critical contract that had the potential to double its revenue. All was going well until the insurance clauses became a stumbling block.
Artery uses bespoke AI tools to streamline internal workflows.
“The initial contract contained a full indemnity favouring one party, an attempt to cap bodily injury exposures, onerous subcontractor requirements, as well as a provision to be a named insured on the other party’s insurance policy framework,” says Nathan Goodall, chairman of Artery Group and managing director of Artery Insurance & Risk, which specialises in the use of legal expertise within the insurance broking business.
Concerns also arose about how to handle large stock volumes circulating across multiple continents.
“Our team stepped in to assist both parties to develop a robust insurance program that adequately addressed their physical and legal risk exposures,” says Goodall.
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It’s especially important for supply contracts comply with the new unfair contracts regime.
“Nathan and his team worked collaboratively to formulate appropriate coverage, while ensuring contract terms were fair and compliant with legal standards, laying the groundwork for a successful commercial outcome,” says Hunter Products CEO Luke Hunter.
For many businesses, seeking expert advice is the only way to clarify the terminology to be included in contracts.
“Many larger companies rely on an imbalance of power and ask to be a named insured and to be held harmless from any liability, even with respect to their own negligence,” says Goodall. “However, clauses like these can’t be included now thanks to the expanded provisions of the unfair contracts regime.”
Laws revamp adds protections
Australia’s unfair contract terms regime under the Australian Consumer Law was strengthened in November 2023 by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022. Unfair contract terms in standard-form contracts are now illegal and penalties can apply each time an unfair term appears. Similar changes were also made to the Australian Securities and Investments Commission Act (2001).
The regime captures consumer and small business contracts, and even includes protections for insurance contracts.
Artery Insurance & Risk managing director Nathan Goodall.
“The small business test is broader than many assume, catching entities with fewer than 100 full-time equivalent staff or with turnover under $10 million a year, with separate contract value and business size tests applied under the ASIC Act,” says Goodall.
Goodall started Artery Insurance & Risk, which he runs with his wife, Aryan, and their daughter Taylor, in 2022. Featured among this year’s AFR Fast Starters, the group has grown into a multidisciplinary practice with a clear purpose: to remove friction between contracts, insurance policies and claims.
Under the unfair contract terms regime, courts assess unfairness using a three-limb test and can void terms, vary contracts, impose pecuniary penalties and issue broader restorative orders.
Examples of contract terms that could be flagged as high-risk under the unfair contract terms act include broad indemnities, one-sided limitations of liability and onerous insurance requirements, such as demands to be added as a named insured.
“Since late 2023, it’s not just that unfair terms can be void; proposing or relying on them can attract penalties,” says Goodall. “That’s shifted the risk calculus for all parties using standard-form contracts, especially where insurance clauses once pushed risk downstream.
“Plus, many counterparties once treated as sophisticated are now caught by the expanded unfair contracts regime. So, relying on standard-contract templates now places many businesses at risk.”
Goodall’s team performs a pre-signature unfair contract terms and insurability health check that screens contracts and maps risk transfer against policy response. They are able to propose balanced alternatives such as mutual indemnities, proportionate liability and realistic insurance requirements.
Insurance and indemnities must align
Under the law, standard-form means standard, even when some changes have been made to the document.
“A contract can be standard form even if the other party is allowed minor edits or some latitude to select options. Clients assume they’re safe because they have negotiated some of the contract terms, when the overall template still operates on a take-it-or-leave-it basis,” says Goodall.
Where contracts go wrong most often is with one-sided indemnities, such as requiring one party to cover losses caused by another party and broad limitations and exclusions that apply, irrespective of fault. Insurance clauses that demand placements like naming a principal as an insured without qualification are red flags under the unfair contract term lens.
Additionally, insurance and indemnities must align under the unfair contracts regime.
“Many insurance policies exclude contractual liability or won’t respond to over-broad hold-harmless obligations. Our structured reviews reconcile the contract terms with the actual policy coverage and account for possible limitations or exclusions contained within each policy wording. Without a structured review process, and depending on which side of the negotiation they sit on, a business can easily find themselves self-insured or facing a huge fine. Both outcomes come as quite a shock and could result in the failure of the business,” says Goodall.
Organisations that do not meet the unfair contract regime’s requirements face onerous penalties. Corporations face fines of up to $50 million or 30 per cent of turnover, with additional penalties under the ASIC Act. Individuals can also be liable.
“Courts can void terms, vary contracts, restrict future use of unfair clauses and even disqualify offenders from managing companies, making proactive remediation essential,” says Goodall.
