The ACCC Initiates its First Case for Breach of Unfair Contract Terms

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:

• it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
• it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
• it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

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:

• Bind customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
• Allow JJ Richards to unilaterally increase its prices;
• Remove any liability for JJ Richards where its performance is “prevented or hindered in any way”;
• Allow JJ Richards to charge customers for services not rendered for reasons that are beyond the customer’s control;
• Grant JJ Richards exclusive rights to remove waste from a customer’s premises;
• Allow JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days;
• Create an unlimited indemnity in favour of JJ Richards; and
• Prevent customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

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.