Unfair Contract Terms: ACCC enforces new laws

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The ACCC introduced new laws on 12 November 2016 which extended to cover small business contracts and afford protection from unfair contract terms. A term of a small business contract will be “unfair” if it is one-sided and excessive and creates a “significant imbalance” between the parties, is not reasonably necessary to protect the benefiting party’s legitimate interests and would cause detriment to the other party.[1]

Background

Whilst the laws have been in force for just over a year, we have seen the first significant decision which sets out how the laws will be interpreted.

In the wake of the new laws, JJ Richards entered into, or renewed, at least 26,000 contracts for the provision of waste management services in Australia.

Terms

The eight terms under scrutiny as being “unfair” had the effect of:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
  • allowing JJ Richards to unilaterally increase its prices;
  • removing any liability for JJ Richards where its performance is “prevented or hindered in any way”;
  • allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer’s control;
  • granting JJ Richards exclusive rights to remove waste from a customer’s premises;
  • allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days;
  • creating an unlimited indemnity in favour of JJ Richards; and
  • preventing 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.

Outcome

The Court in ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 declared that these eight terms were unfair and consequently void. The Court emphasised that the unfair terms tended to exacerbate each other by “increasing the overall imbalance between the parties and the risk of detriment to JJR Customers”.[2]

JJ Richards consented to orders restraining it from relying on the unfair terms in existing small business contracts and from using the terms in future contracts with small businesses. They were also ordered to publish a corrective notice on the homepage of their website and establish and implement an ACL Compliance Program to be undertaken for a period of 3 years.

Key takeaways

ACCC Deputy Chair Dr Sharper said that “The Court’s decision serves as a reminder to large businesses to review their standard form contract (for example, terms of trade) and make sure they don’t include any unfair terms. The ACCC will not hesitate to take appropriate action to ensure large businesses are complying with the unfair contract terms provisions.”

The ACCC has identified common themes in potentially unfair contract terms as including:

  • unilateral variation of rights;
  • lack of reciprocity;
  • automatic renewal;
  • wide indemnities; and
  • liquidated damages.

While the Courts will ultimately decide whether a term is unfair under the ACL, the ACCC’s guidance can be a useful safety check.

Want more information?

If you would like further advice as to whether your contract contains unfair contract terms you can contact us for advice tailored to you.

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[1] Competition and Consumer Act 2010 (Cth) Schedule 2, Australian Consumer Law ss 23, 24.
[2] ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224, [63].
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