Your Contract Generator Scales the Clause. So Does the Penalty., practitioner guidance from TheAICommand
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Regulatory analysis

Your Contract Generator Scales the Clause. So Does the Penalty.

A model that drafts contracts reproduces the same term across all of them, and section 27 presumes a contract is standard form once that is alleged. Section 23 of the Australian Consumer Law treats every unfair term proposed as a separate contravention, and the fixed maximum for a body corporate doubled to $100,000,000 in March 2026. Here is the test, the onus, the arithmetic and the audit.

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GRC content. Written for compliance, risk, and audit professionals in Australian financial services. General information. Not legal or compliance advice.

Quick answer

A generated contract is very likely a standard form contract, because section 27(1) presumes it once alleged and section 27(2) makes the number of substantially similar contracts a mandatory factor. Section 23 makes each unfair term proposed a separate contravention, and section 224 sets a maximum for each starting at $100 million for a body corporate.

A contract generator does not write one contract. It writes the same contract, over and over, at whatever volume the pipeline demands.

That is the point of it, and it is the fact pattern the unfair contract terms regime was built around. The law does not ask who drafted the clause. It asks how many times the same clause went out, whether the other side could change it, and whether the term is unfair. A model answers the first two against you.

What makes a contract standard form?

Section 27(1) of the Australian Consumer Law puts the onus where compliance teams do not expect it. If a party to a proceeding alleges a contract is a standard form contract, it is presumed to be one unless another party proves otherwise. The supplier that prepared the template carries that burden.

Section 27(2) sets out what a court must take into account, and one factor reads as though drafted for automated production. Paragraph (ba) requires the court to consider whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and if so how many. Paragraph (a) asks about bargaining power, and paragraph (c) whether the other side had to accept or reject the terms as presented.

Section 27(3) closes the obvious escape routes. A contract may still be standard form despite an opportunity to negotiate changes that are minor or insubstantial in effect, and despite an opportunity to select a term from a range of options determined by another party. A generator offering three approved variants of a termination clause is doing what paragraph (3)(b) describes.

A single drafting template feeding many identical contracts
One template, many contracts, and one clause repeated across all of them.

The practical consequence is blunt. If you automate contract production, arguing the output is not standard form is hard, and you are the one who has to argue it.

What makes a term unfair, and who carries the onus?

Section 24(1) sets three cumulative limbs. The term must cause a significant imbalance in the parties' rights and obligations under the contract, must not be reasonably necessary to protect the legitimate interests of the party advantaged by it, and must cause detriment, financial or otherwise, if applied or relied on.

The second limb carries its own reverse onus. Section 24(4) presumes a term is not reasonably necessary to protect those interests unless the advantaged party proves otherwise. The supplier proves the contract is not standard form, then proves the term was reasonably necessary. Two presumptions, both pointing the same way.

Section 24(2) requires a court to consider the extent to which the term is transparent and the contract as a whole. Transparent, under section 24(3), means expressed in reasonably plain language, legible, presented clearly, and readily available to any party affected. A model that pads a template with boilerplate can make a term less transparent without changing its effect.

Section 25 lists the examples, and the unilateral variation limbs bite hardest for subscription businesses. Paragraph (d) covers a term permitting one party but not another to vary the terms, and paragraph (g) unilateral variation of the characteristics of the goods or services supplied. Section 26 carves out terms defining the main subject matter, setting the upfront price, or required or expressly permitted by law, but only to that extent.

The penalty counts terms, not contracts

Section 23(1) voids an unfair term in a standard form consumer or small business contract, and section 23(2) keeps the rest on foot if it can operate without it. Voidness is the old remedy. The subsections that matter now are 23(2A) and 23(2C), which make it a contravention to propose an unfair term, and to apply or rely on one.

Then the multiplier. Section 23(2B) makes a person who contravenes subsection 23(2A) liable for a separate contravention for each unfair term that person proposed. Five unfair terms in one template is five contraventions, before anyone counts how many contracts carried them.

Section 224 prices each act or omission. For a body corporate, item 2A of the table in section 224(3) points to section 224(3A): the greater of $100,000,000, three times the benefit where a court can value it, or 30% of adjusted turnover during the breach turnover period where it cannot. For an individual the maximum is $2,500,000, and both are current as at 21 September 2026.

One hundred million dollars as the fixed limb of the maximum penalty per contravention
The fixed limb of the per contravention maximum for a body corporate, doubled on 28 March 2026. The maximum is the greater of this, three times the benefit, or 30% of adjusted turnover.

The fixed figure is new. The Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026 substituted $100,000,000 for $50,000,000 in section 224(3A)(a), commencing 28 March 2026, and applies only to acts or omissions on or after that date. The three times benefit and 30% turnover limbs are unchanged.

The turnover limb rewards a second look, because duration inflates it. The breach turnover period is the longer of two windows: twelve months back from the end of the month the conduct ceased or proceedings began, and the period from the beginning of the month it started. A term that sat in a template for three years produces a three year turnover base.

The remedy scales the same way, once a court has declared a term unfair under section 250. Section 243B then lets a court, on the regulator's application, restrain a respondent from including a substantially similar term in any future standard form contract, whether or not that contract is identifiable when the order is made.

One honest counterweight. Section 224(4) provides that where conduct contravenes two or more of the listed provisions, a person is not liable to more than one pecuniary penalty for the same conduct. That constrains stacking across provisions. It does not touch section 23(2B), which counts terms inside one subsection.

Financial services sit under a different Act

If the contract is a financial product, or a contract for the supply of financial services, the operative provisions are not in the Australian Consumer Law. They sit in Subdivision BA of the ASIC Act 2001, which ASIC administers. Section 12BF mirrors section 23, including the per term rule at 12BF(2B), and sections 12BG, 12BH and 12BK mirror the test, the examples and the standard form factors.

Two differences matter for a mixed business running one template library. Section 23(4) of the Australian Consumer Law catches a counterparty employing fewer than 100 persons or turning over less than $10,000,000, with no cap on contract value, while section 12BF(4)(a) of the ASIC Act adds an upfront price condition of $5,000,000. A large financial services contract with a small counterparty can fall outside that regime while an equivalent non-financial contract stays inside.

The penalty is also expressed in penalty units. Section 12GBA(6)(aa) makes a provision of Subdivision BA a civil penalty provision, and section 12GBCA sets the maxima for a body corporate: the greatest of 50,000 penalty units, three times the benefit derived and detriment avoided, or 10% of annual turnover capped at 2.5 million penalty units. A penalty unit is $364 from 1 July 2026, so as at 21 September 2026 that is $18,200,000, with a ceiling of $910,000,000. That value is set by the Crimes (Amount of a Penalty Unit) Instrument 2026 under subsection 4AA(1A) of the Crimes Act 1914, and the instrument records that the amount is the result of indexation and applies to offences committed on or after 1 July 2026.

Why a generator is the exact multiplier the regime assumes

Consider the ACCC's own enforcement. On 30 June 2026 it announced Federal Court proceedings against Amazon Commercial Services, alleging that between November 2023 and August 2025 Prime contracts with more than one million annual subscribers carried five unfair terms permitting unilateral negative changes without a remedy, and that Amazon later relied on one or more of them to bring ads to Prime Video. The ACCC calls it one of the first contested matters under the penalty regime that applies to contracts made or renewed from 9 November 2023, and the allegations were untested as at 21 September 2026. Note the vintage. The alleged conduct ended in August 2025, and section 310 of the Australian Consumer Law applies the doubling only to acts or omissions on or after 28 March 2026, so the fixed limb for that conduct is $50,000,000, not the $100,000,000 above. The ACCC states the same rule for the maxima it publishes.

The structure is what to notice. One standardised sign-up process. Five terms. More than a million contracts. The ACCC also alleges a related overseas entity was involved in drafting the Australian contracts and was knowingly concerned in the conduct, and section 224 reaches a person knowingly concerned in a contravention, not only the entity named on the contract. The ACCC does not allege the terms were machine-drafted. Distribution at scale is what makes the arithmetic bite, whoever wrote the clause.

There is a second, quieter exposure. The ACCC states that the 9 November 2023 changes apply to contracts made or renewed on or after that date, and to a term varied or added from it, and that where a term is varied or added, the standard form changes apply to the whole contract. A generator that refreshes a template on a schedule varies terms continuously, and each refresh can pull an older contract into the regime.

None of this makes AI drafting prohibited. Treasury's Review of AI and the Australian Consumer Law reported in October 2025 that the principles-based protections under that law are generally well adapted to the potential consumer law risks of AI enabled goods and services. That finding is not law, and it sits beside Australia's decision not to pass a separate AI Act. The same statute reaches an AI-written advertisement and an AI pricing agent.

What do you check in a generated contract?

Start with the clause families section 25 names, because that is where a court will start and where the ACCC has aimed. Its 2026-27 enforcement priorities, current as at 21 September 2026, single out unfair terms with a focus on harmful cancellation terms, including automatic renewals, early termination fees and non-cancellation clauses. Add one-sided limitation of liability, one-sided assignment, and any term letting one party decide whether the contract was breached.

The two questions a template audit must answer separately
Two distinct questions: is the term unfair, and how many contracts carry it.

Then answer the question the drafting review will not: how many live contracts carry each term. The register of which template version went to which counterparty on which date converts one clause into a contravention count, and it usually sits in the sales system, not with legal. Treat the template as a controlled document with a version, an owner and an approval, like any other instruction artefact that shapes output at scale, and route changes through the same human change control as an obligations register.

A model is useful for the inventory half of that work. Use it to find and group candidate clauses, never to reach the conclusion.

Prompt
You are helping build a clause inventory for a contract template audit.
Source: [TEMPLATE_NAME] version [VERSION_ID], effective [EFFECTIVE_DATE].

For every clause in the template, return a row with:
1. Clause reference and heading.
2. Which party the clause advantages, and in one line, how.
3. Whether the clause is one-sided, meaning it gives a right to one party
   that the other does not have.
4. Which of the section 25 example categories it most resembles, or NONE.
5. The clause text verbatim.
6. Reading level and word count of the clause.

Flag as REVIEW any clause permitting unilateral variation, unilateral
termination, automatic renewal, an early termination fee, a limitation of
liability, or assignment without consent.

Do not decide whether any term is unfair.
Do not assess significant imbalance, legitimate interests or detriment.
Do not state whether the contract is a standard form contract.
Do not rewrite, shorten or improve any clause.
Return every REVIEW row as OPEN for a named human reviewer.

Bottom line

Automated drafting makes the standard form question easy for the regulator and hard for you, because the evidence section 27(2)(ba) asks for is the volume your generator produces, and two presumptions leave you carrying the onus. The penalty then counts terms, not documents: section 23(2B) makes each unfair term proposed a separate contravention, priced against a maximum that starts at $100,000,000 for a body corporate as at 21 September 2026. The clause is written once. The exposure is counted every time it ships. Audit the template, not the contract.

Do this Monday

  1. List every template a generator produces, with its name, version, effective date and named owner.
  2. Screen each template against the section 25 clause families, starting with automatic renewal, early termination fees, non-cancellation clauses and unilateral variation.
  3. Reconcile templates to live contracts, so you can state how many counterparties hold each flagged clause and when each was made.
  4. Split the register by regime, marking financial products and services as ASIC Act matters and applying the $5,000,000 upfront price condition only to those.
  5. Gate template change on a named human approval before anything reaches production.
Content disclaimer: This article is for general educational and informational purposes only. It does not constitute legal advice, regulatory guidance, or a substitute for professional compliance judgement. Regulatory obligations vary by entity type, licence, and circumstance. Always refer to primary source guidance from the ACCC, ASIC, or the relevant regulatory authority.

Primary sources

  • Competition and Consumer Act 2010, Schedule 2, sections 23 to 28A, 224, 243B and 250. Compilation No. 166, C2026C00389, the latest registered compilation as at 21 September 2026. A later point-in-time version commenced 16 September 2026 under Schedules 4 and 5 of the Treasury Laws Amendment (Strengthening Accountability for Tax Adviser Misconduct and Other Measures) Act 2026, which amends the merger and competitive neutrality provisions and does not touch sections 23 to 28A, 224, 243B or 250. https://www.legislation.gov.au/C2004A00109/2026-08-27/2026-08-27/text
  • Treasury Laws Amendment (Doubling Penalties for ACCC Enforcement) Act 2026, No. 19 of 2026, commenced 28 March 2026. https://www.legislation.gov.au/C2026A00019/asmade/text
  • Competition and Consumer Amendment (Unfair Trading Practices) Act 2026, No. 64 of 2026, assented 6 July 2026, commencing 1 July 2027, Schedule 1 items 9 and 19. https://www.legislation.gov.au/C2026A00064/asmade/text
  • Australian Securities and Investments Commission Act 2001, Subdivision BA and sections 12GBA to 12GBCA. Compilation No. 108, C2026C00358, in force 7 July 2026. https://www.legislation.gov.au/C2004A00819/latest
  • Crimes (Amount of a Penalty Unit) Instrument 2026, F2026N00424, penalty unit $364 from 1 July 2026. https://www.legislation.gov.au/F2026N00424/asmade/text
  • ACCC, Amazon in court for introducing ads to Prime Video using allegedly unfair contract terms, media release, 30 June 2026. https://www.accc.gov.au/media-release/amazon-in-court-for-introducing-ads-to-prime-video-using-allegedly-unfair-contract-terms
  • ACCC, Fines and penalties, 13 July 2026. https://www.accc.gov.au/business/compliance-and-enforcement/fines-and-penalties
  • ACCC, Contracts, 21 July 2026. https://www.accc.gov.au/business/selling-products-and-services/contracts
  • ACCC, Compliance and enforcement priorities, 11 June 2026. https://www.accc.gov.au/about-us/accc-strategy-and-priorities/compliance-and-enforcement-priorities
  • Treasury, Review of AI and the Australian Consumer Law, Final report, October 2025. https://treasury.gov.au/sites/default/files/2025-10/p2025-702329-fr.pdf

TheAICommand. Intelligence, At Your Command.

Frequently asked questions

Does using AI to draft a contract change whether it is standard form?
No, and it pushes the assessment the wrong way. Section 27 of the Australian Consumer Law requires a court to consider whether the party made other contracts in the same or substantially similar terms and how many. Generation at volume produces exactly that evidence. Section 27(1) also presumes a contract is standard form once that is alleged, unless another party to the proceeding proves otherwise.
How many contraventions is one bad clause in a template?
Section 23(2B) states that a person who contravenes section 23(2A) commits a separate contravention in respect of each term that is unfair and that the person proposed. Five unfair terms in one template is five contraventions, and section 224 sets the maximum for each act or omission. Section 224(4) prevents more than one penalty for the same conduct across different provisions.
What is the maximum penalty for an unfair contract term now?
For a body corporate under the Australian Consumer Law, the greater of $100,000,000, three times the benefit where a court can value it, or 30% of adjusted turnover across the breach turnover period where it cannot. For an individual it is $2,500,000. The fixed amount doubled from $50,000,000 on 28 March 2026 and applies to acts or omissions from that date.
Do the same rules apply to financial products and services?
The equivalent provisions sit in Subdivision BA of the Australian Securities and Investments Commission Act 2001 and ASIC administers them. The unfairness test and the per term rule are the same. Two things differ: a small business contract there must have an upfront price not exceeding $5,000,000, and penalties are expressed in penalty units.
Which contracts does the current regime reach?
The ACCC states that the changes apply to standard form contracts made or renewed on or after 9 November 2023, and to a term varied or added on or after that date. Where a term is varied or added after that date, the standard form assessment changes apply to the whole contract, so a routine template refresh can pull an older contract in.

Context

The unfair contract terms provisions sit in Part 2-3 of Schedule 2 to the Competition and Consumer Act 2010, the Australian Consumer Law, at sections 23 to 28A, with penalties in section 224. The financial services mirror sits in Subdivision BA of the ASIC Act 2001, at sections 12BF to 12BM, with penalties reached through sections 12GBA, 12GBB and 12GBCA. Neither regime mentions software, and neither needs to. The operative concepts are volume, take it or leave it presentation, and a term the supplier proposed. From 1 July 2027 the Competition and Consumer Amendment (Unfair Trading Practices) Act 2026 adds a separate standard form test for subscription contracts at section 48H, which section 27 will expressly not reach, so a subscription template register built on section 27 alone needs a second column before then.

AI angle

AI can find candidate clauses, group them by family, compare a template against a previous version and build the register of which contract carries which term. What it cannot do is decide whether a term causes a significant imbalance, whether it is reasonably necessary to protect a legitimate interest, or whether the contract as a whole offsets it. Those are the three limbs of section 24 and they are for a court, and before that for a named human who signs off the template.

Primary sources

Unfair Contract TermsAustralian Consumer LawACCCASICContract AutomationAI Governance
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Content disclaimer: This article is for general educational and informational purposes only. It does not constitute legal advice, regulatory guidance, or a substitute for professional compliance judgement. Regulatory obligations vary by entity type, licence, and circumstance. Always refer to primary source guidance from APRA, ASIC, or the relevant regulatory authority.