Unfair Contracts regime enforced by Federal Court

Articles, Commercial Contracts

In November 2016 we reported that the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) came into effect on 12 November 2016 with the purpose of protecting small business and extending existing unfair contract term protections available under the Australian Consumer Law (ACL) and Australian Securities and Investments Act 2001 (Cth) to small businesses entering into standard form contracts.

The result of the first court action taken by the ACCC is the subject of a decision by the Federal Court in Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224.  On 13 October 2017 the Federal Court declared 8 contractual terms of JJ Richards standard form contracts to be unfair contract terms within the meaning of section 24 of the ACL and void by operation of section 23 of the ACL.

In summary the Court’s findings relate to clauses in respect of:

  • automatic renewal of  contracts:  binding the customer to successive contracts unless terminated by 30 days’ written notice prior to the end of the previous term;
  • unilateral price variation: allowing JJ Richards to adjust their prices for many reasons by only providing 30 days notice of these increases;
  • agreed times: limiting the liability of JJ Richards where performance or collection at agreed times is prevented or not adhered to for any reason;
  • no credit for services not provided without notification: prohibiting customers from applying for credit for charges incurred where collection could not occur due to it being a public holiday, lack of access or other reason unless notice was provided;
  • exclusivity: granting JJ Richards exclusive rights to remove waste from the customers premises, effectively preventing the customer from engaging a second party for waste management;
  • credit terms: granting JJ Richards the right to suspend its services if payment is not received within 7 days;
  • indemnity in favour of JJ Richards alone: without corresponding benefit to the customer, which is to be provided by the customer at the fullest extent to JJ Richards in respect of any liabilities, losses, claims, damages and costs suffered in connection with the agreement; and
  • termination: inability to terminate without final payment of all monies outstanding by the customer and further costs may be incurred on rental equipment which has not been removed as a result of the non-payment.

JJ Richards did not seek to argue that the terms were reasonably necessary to protect its legitimate interest.  It was accepted by the parties that these terms created a significant imbalance between JJ Richards and its customers.

These are common terms that continue to be found in standard form contracts. Such protections afforded by these provisions can be lost however if they are not compliant with the new laws, resulting in an exposure of the legitimate interests of some businesses, including limiting the ability to mitigate risks associated with indemnity, termination and pricing provisions.

This case should be a reminder to large business to review standard form contracts to ensure compliance with the new provisions and cautions businesses to employ such provisions only when necessary to protect their legitimate interests and avoid any unwanted attention from the ACCC.

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