UNFAIR CONTRACT TERMS

“We speak softly and carry a big stick” ACCC warns industry about unfair contract terms

It has been nearly a year since the unfair contract terms regime of the Australian Consumer Law (“ACL”) was extended to include contracts where at least one party is a small business. The ACCC has now obtained its first declarations against a key player in the waste industry, JJ Richards Pty Ltd.

Whilst the declarations were made by the court with the consent of both the ACCC and JJ Richards, the decision highlights the types of terms the regulator is targeting.

Which contracts are covered?

The regime applies to standard form contracts where at least one party is a consumer or small business.  A small business is defined as a business employing less than 20 employees at the time of contract, although this may be difficult for the other party to identify.

For small business contracts, the contract must have been entered into or renewed on or after 12 November 2016 and have an upfront price of less than $300,000 or $1,000,000 if the contract duration is more than 12 months.

What terms are unfair?

In the JJ Richards case, the unfair terms included automatic renewal of the contract for a further 5 year term unless the customer terminated within 30 days of the end of each term, exclusive use of JJ Richards’ services for the 5 year term (plus additional terms), allowing JJ Richards to unilaterally increase its prices and charge for services not rendered for reasons outside of the customer’s control and an unlimited indemnity in favour of JJ Richards.

Generally, the court will look to terms which create a significant imbalance in the rights and obligations of the parties, which are not reasonably necessary to protect the interests of the party to be advantaged by the term and would cause a detriment to the other party if relied upon.

In deciding if a term is unfair, the court will consider the contract as a whole, the particular facts and the extent to which the term is transparent.  The court in the JJ Richards case was critical of the use of small, difficult to read font, legal language and the unfair terms not being presented in a way so as to draw them to the customer’s attention.

What happens if a term is unfair?

If a court declares a term is unfair, it is void and, if the term was essential to the contract, may affect the validity of the whole contract.  The court may also order compensation to be paid to a party affected by an unfair term or grant injunctive or other relief.

In the JJ Richards case, the court also required JJ Richards to write to its small business customers enclosing a copy of the orders, place a notice on its website and client portal about the orders and required JJ Richards to implement a 3 year ACL compliance program for its staff.

How can we help?

In addition to the waste industry, the ACCC has signalled an intention to also crack down on telecommunications, franchising, retail leasing and independent contracting.  Having to publish court orders on your website explaining that your standard contract terms are unfair and void cannot be good for business.

We encourage businesses to urgently review their standard form contracts before any ACCC investigations.  Here at Scoglio Law, we can assist you to review your standard form contracts and provide you with advice.

If you have any questions or we can be of assistance, please contact Tony Scoglio or Lisa Myers on (07) 3833 2100 or by email tony@scogliolaw.com.au