ASIC initiates legal action against PayPal over unfair contract term ahead of upcoming reforms

November 7, 2023

The Australian Securities and Investments Commission (ASIC) has taken legal action against PayPal Australia Pty Limited (PayPal), alleging that one of it’s standard form contracts with small businesses contains an unfair contract term (UCT). The contentious contract term is found within PayPal’s user agreement, which stipulates that if PayPal business account holders fail to notify PayPal of any errors or discrepancies in fees charged within 60 days, they are automatically considered to have accepted the accuracy of those fees. ASIC is seeking a declaration to void this term, along with injunctions and corrective orders. 

This move by ASIC follows a series of similar cases pursued by both ASIC and the Australian Competition and Consumer Commission concerning UCTs in small business contracts.

Unfair contract terms are expected to remain a primary focus for regulatory bodies, especially with the introduction of significant civil penalties slated to begin in November 2023, as part of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth). Key changes under this act include:


  • Broader Coverage – The act expands the definition of  small businesses & to include those with fewer than 100 employees or less than $10 million in annual turnover. This expansion means that more business-to-business contracts will fall under the UCT protections.
  • Heftier Penalties – Instead of merely rendering UCT terms void, the act introduces substantial maximum penalties. These penalties are calculated as the greater of $50 million, three times the benefit gained, or 30% of the turnover during the “breach turnover period” which could extend beyond 12 months. Individuals may also face penalties of up to a maximum of $2.5 million.
  • Enhanced Authority – The court’s authority is expanded to void, alter, or refuse to enforce UCTs. Additionally, the court can prevent individuals from entering into future contracts containing declared UCTs or relying on UCTs in existing contracts, regardless of whether those contracts are currently before the court, if the terms are deemed unfair.


These changes will take effect on November 9, 2023.

Businesses are advised to take heed of recent regulatory actions concerning unfair contract terms. They should proactively assess their relevant contracts to determine if they fall under the UCT regime and amend contract terms as needed to avoid potential penalties and scrutiny from regulators.

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