By Caroline James
In November 2016, the Competition and Consumer Act 2010 (Cth) was amended to extend the prohibitions against ‘unfair contract terms’ to small businesses. We have written a number of articles on this topic which can be found here.
In September 2017, the Australian Competition and Consumer Commission (ACCC) initiated its first case against a business that it argues has imposed unfair terms in its standard form contracts entered into by small businesses.
What is the new law?
In short, a small business is one that has less than 20 employees and the law applies to standard form contracts which relate to the supply of goods or services or interests in land, where the upfront contract price is less than $300,000 or less than $1 million if the contract if for more than 12 months. A standard form contract is where the other party has little opportunity to negotiate the terms – a “take it or leave it” type scenario.
A term is unfair if:
If a term is found to be unfair, a court may declare that it be struck out of the agreement. The rest of the contract, however, will continue to apply.
Some rubbish terms
JJ Richards & Sons Pty Ltd (JJ Richards) is a large, privately owned waste management company. The waste management sector has been one of the industries followed closely by the ACCC for its problematic contract terms. In the first Federal Court case regarding unfair contracts, the ACCC has identified 8 clauses in JJ Richards’ standard form contracts that it deems unfair in accordance with the Australian Consumer Law (ACL), being terms that:
The ACCC sought that the terms be declared void by the Court, and also sought injunctions to prevent JJ Richards from relying on those terms with existing customers and from including those terms in future contracts with small businesses.
On 13 October 2017, and by way of consent from JJ Richards, the Court declared that the eight terms in the standard form contract were unfair and void. In the judgment, the Court observed that the parties agreed that the impugned term relating to automatic renewal is exacerbated by other terms about price variations, exclusivity and termination which all together created a significant imbalance between JJ Richards and its customers. It was ordered that JJ Richards be restrained from using those contract terms with existing and future small businesses.
Although the outcome was obtained by consent, the declaration is a victory for the ACCC because it is evidence of the scope and application of the unfair contract terms in the ACL. Businesses should be aware therefore of the prescriptive nature of the unfair contract terms prohibitions in the ACL and how difficult it will be to deny its application to your standard form contract if your business is caught.
If you would like to have a discussion with one of our lawyers about your contracts to ensure they comply with the ACL, please contact Caroline James (Business Practice Group, Corporate Practice Group) or Su-Ann Loh (Director, Dispute Resolution Practice Group) on 03 9629 9629.