The unfair contract term laws allow an investor to "get lucky" on a binary option

The unfair contract term (UCT) regime in the Australian Consumer Law and ASIC Act has been a significant part of Australian contract law for over a decade. The regime applies to consumer contracts and "small business contracts". There have been few high-value claims under the UCT regime. The recent case of Tomasso v IG Markets Ltd [2025] WASC 338 is an exception. In that case, over $5.5 million was at stake.

High-value claims may become more frequent given "small business contracts" no longer have a price cap as a requirement for the UCT regime in the Australian Consumer Law. In November 2023, the price cap was removed. Going forward, we could see more high-value claims under the UCT regime. Even if an individual contract is worth a comparatively small sum in monetary terms, it is possible that numerous claims could be made in respect of the same contract if it is used widely. The risk of an aggregate high-value claim exists with low-sum contracts but with higher-sum contracts added to the mix, the risk is greater.

What was Tomasso about?

Mr Tomasso was a client of an online trading platform (the Operator) that offered binary options as an investment to clients. The binary options had an "all or nothing payment profile" which meant the client either won or lost the money they invested depending on whether the particular event, which the binary option related to, transpired. Clients could invest in the movement of financial indices or the outcome of political events. Binary options are not like a traditional investment (for example) in shares or units of a managed fund. They are more akin to a bet with a win-or-lose outcome.

The Operator ran a number of "test markets" on its internal systems for the purposes of IT testing. These test markets were not supposed to be available to clients. On 16 and 17 April 2020, a binary option test market named "Test FX UP" appeared on the trading platform. This was an error that occurred due to inadvertence on the part of an employee of the Operator. The Test FX UP market moved upwards in uniform increments, which allowed clients to easily predict its movement. Mr Tomasso completed 19 trades on Test FX UP on 16 and 17 April 2020 making a profit of $5,518,251.44. He described this amount as "lifechanging". In his own words, he "got lucky". The Operator cancelled the gain of $5,518,251.44 and locked Mr Tomasso's account.

Mr Tomasso commenced court proceedings against the Operator seeking payment of $5,518,251.44. He alleged the Operator breached the user agreement between himself and the Operator by failing to pay him this amount. The trading platform resisted the claim on several bases, including a term of the user agreement known as Term 11. Term 11 "reserved to [the Operator] the right to either void from the outset or amend the terms of any transaction which contained or was based on an error which [the Operator] reasonably believed was obvious or palpable", provided the Operator "act[ed] in good faith according to what it reasonably believed was fair in the circumstances". Mr Tomasso responded by alleging Term 11 was an unfair term under the UCT regime and hence void. So, a key issue was whether Term 11 was unfair according to the UCT regime. The Court ultimately found it was unfair and void, which meant Mr Tomasso kept his $5.5 million profit.

Why was Term 11 unfair?

A term is unfair under the UCT regime if (i) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; (ii) it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and (iii) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. The UCT regime does not apply to all contracts. The contracts that it does and does not apply to are beyond the scope of this article.

The Western Australian Supreme Court concluded that Term 11 caused a significant imbalance for reasons including that Term 11 protected the Operator in respect of an erroneous transaction but not its clients. In other words, the term did not give clients "reciprocal rights".

As for whether Term 11 was reasonably necessary to protect a legitimate interest, the parties agreed that the following were legitimate interests: the Operator's "financial interests" and "risks associated with a transaction based on manifest error". These risks included "the avoidance of financial loss; broader financial and business risks; reputational risk; and regulatory risk". The Court found Term 11 was not reasonably necessary to address these legitimate interests because they "could have been protected by a more balanced clause" that was "more proportionate and reasonable".

The Court concluded Term 11 would cause detriment if it were applied. This was because if the Operator "exercised its discretion to void or amend the terms of a transaction, it was possible that its client would incur a liability or make a loss that would not have otherwise occurred".

The UCT regime does not apply to the extent that a term defines the main subject matter of the relevant contract. The Operator contended that Term 11 defined the main subject matter of the user agreement but this argument was rejected by the Court. The Court concluded the main subject matter of the contract was "the opening and closing of transactions falling within its terms". Term 11 did not define the subject matter of these transactions; instead, it "relate[d] to or concern[ed] some of these transactions".