Drafting a commercial contract is one of the most important legal tasks a business can undertake. Whether dealing with suppliers, customers, partners, or contractors, the strength of your contracts directly affects your risk exposure, enforcement options, and working relationships.
Yet many businesses make the same drafting errors – sometimes copying clauses from old templates or skipping legal review. These mistakes can lead to costly disputes, invalid contracts, or terms that won’t stand up in court.
This article, written by our commercial contract law team, highlights the top five mistakes made when drafting commercial contracts in Australia, with practical tips and supporting case law to help you avoid them.
Key Takeaways
Contracts must clearly identify the parties and their responsibilities to avoid ambiguity and legal disputes.
Essential legal elements like offer, acceptance, and consideration must be present – without them, the contract may be void.
Generic or copy-pasted clauses can backfire if they don’t reflect the actual deal or legal context.
Liability clauses must be unambiguous and compliant with the Australian Consumer Law.
Contracts should be reviewed regularly to stay up to date with legal changes, especially around unfair terms.
1. Vague Definitions of Parties and Obligations
One of the most common mistakes in contract drafting is failing to properly identify the parties or using vague language to describe obligations.
For example, using a trading name instead of a full legal entity (like “ABC Plumbing” instead of “ABC Plumbing Pty Ltd ACN 123 456 789”) can create problems when trying to enforce the contract. Similarly, ambiguous phrases like “will use best efforts” or “may assist” don’t clearly establish obligations and can lead to disputes.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, the High Court confirmed that when a party signs a document, they are bound by its terms (even if they didn’t read it). The decision reinforces the importance of clarity and certainty in commercial contracts.
Why it matters: Vague or misidentified parties can result in unenforceable contracts or confusion about who is responsible for what. Courts will enforce what’s written – not what was intended but poorly expressed.
If you’re starting from scratch or reviewing existing documents, our guide on how to write a contract offers practical tips to ensure clarity, structure, and legal enforceability.
2. Ignoring Legal Formalities and Essential Elements
Contracts that don’t meet basic legal requirements may not be valid or enforceable. Under Australian contract law, a binding agreement requires:
Offer and acceptance
Consideration (something of value)
Intention to create legal relations
Certainty of terms
In addition, certain types of contracts (particularly those involving companies) must comply with statutory formalities. For example, section 127 of the Corporations Act 2001 (Cth) governs how a company can execute contracts. If a contract is not signed by the right person(s), its enforceability can be challenged.
For more detail on who can sign a contract and how to do it correctly, see our guide on understanding execution clauses in Australian contracts.
Why it matters: If your contract lacks legal formality (or skips foundational elements) the other party may be able to walk away from it without consequences.
3. Misusing Boilerplate Clauses and Templates
Templates can be useful starting points, but they can also introduce legal and commercial risks if not properly reviewed or adapted.
The High Court’s decision in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 underscores this point. The court held that contract terms must reflect the mutual intention of the parties, assessed in light of the commercial context.
When boilerplate clauses are copied without tailoring, they may not reflect the true agreement (and courts won’t fix that for you). Worse, they may contradict other parts of the contract or fail to consider unique statutory obligations.
While AI tools may assist with early drafting, it’s important to understand the dangers of using ChatGPT in contract drafting without legal oversight.
Why it matters: Contracts must align with the actual deal. Misaligned or unclear clauses weaken enforcement, confuse responsibilities, and increase risk of litigation.
4. Poor Risk Allocation and Liability Clauses
Liability clauses (including exclusions, indemnities, and limitation on liability) are among the most litigated terms in commercial contracts. They must be:
Written in plain, precise language
Legally enforceable (not prohibited by statute)
Tailored to the actual risk profile of the deal
In Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, the court made it clear that ambiguity in exclusion clauses will be interpreted against the drafter (contra proferentem). Also, the Australian Consumer Law prohibits exclusion of certain consumer guarantees, especially in small business contracts.
Why it matters: Overly broad or unclear clauses may be struck out by the court. Even well-drafted exclusions won’t stand if they violate mandatory consumer protections.
5. Not Updating Contracts to Reflect Legal and Regulatory Changes
Laws change – and so should your contracts. Businesses that reuse outdated templates risk breaching current legislation, especially in regulated areas like consumer law, employment, or data privacy.
For example, recent reforms to the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010) expanded protections against unfair contract terms, including in small business contracts. These laws now carry civil penalties for using certain unfair clauses.
Why it matters: Outdated contracts may contain unlawful or unenforceable terms, putting your business at risk of penalties or litigation.
Frequently Asked Questions
What makes a contract legally enforceable in Australia?
A valid contract must include offer, acceptance, consideration, intention to create legal relations, and certainty. Certain contracts also require statutory compliance (e.g. corporate execution rules).
Can I be bound by a contract I didn’t read before signing?
Yes. As confirmed in Toll v Alphapharm, signing a contract binds you to its terms – even if you haven’t read them.
Learn more about what makes a contract legally binding in Australia and how to avoid unenforceable terms.
What is an “unfair contract term” under Australian law?
A clause that creates a significant imbalance, isn’t reasonably necessary, and would cause detriment if enforced. These are banned in standard form contracts under the Australian Consumer Law.
To better understand your obligations under the latest consumer protections, read our article on unfair contract terms in Australian business contracts.
Are verbal agreements enforceable in Australia?
They can be, if all the essential contract elements are present. However, some types (e.g. property or guarantee agreements) must be in writing.
How often should I update my contract templates?
Ideally every 1–2 years, or whenever there is a major change in the law or your business. This ensures your documents stay compliant and effective.
