10 October 2017

The ACCC issues the first proceeding under the new unfair contract regime

Consumers and small businesses are often presented with standard form contracts and lack the time, expertise and bargaining power to critically analyse and negotiate the terms of these contracts.  As a result, on 1 January 2011, the Australian Consumer Law (“ACL”) was introduced.  The ACL provides a uniform framework for the protection of consumer rights through multiple protections including the power of a court to void unfair terms in a standard form contract.  On 12 November 2016 these provisions were extended to small business contracts where the business employs fewer than 20 employees and the upfront price payable under the contract is less than $300,000.00.  The ACCC has recently issued its first proceeding against JJ Richards & Sons under this regime claiming that provisions of their standard form contract are unfair.

What are unfair contract terms?

A term of a contract is unfair if it:

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

If a term of the contract is found to be unfair by the court, it will be declared void and of no effect.

The background to the proceeding

JJ Richards and Sons are one of the largest privately‑owned waste management companies in Australia.  It is alleged that in April of this year, it entered into standard form contracts containing eight clauses which the ACCC claim are unfair.  They are clauses that:

  1. provide that the contract term automatically renews unless the small business terminates within the last 30 days of the existing term;
  2. allow JJ Richards to unilaterally change its prices during the contract term;
  3. seek to clear JJ Richards of any liability for breach of the contract if they fail to deliver services on time;
  4. require the customer to apply for a credit where JJ Richards fails to provide the services, yet JJ Richards only has to use its best endeavours to provide services within agreed times;
  5. prevent the small business from obtaining waste management services from another party during the contract term, even if those services are not already being provided by JJ Richards;
  6. require the small business to pay their invoices within seven days. If they do not do so, JJ Richards can suspend their services but continue to charge them;
  7. require the small business to provide an unlimited indemnity to JJ Richards, even if the small business does not cause the loss sustained; and
  8. prevents the small business from terminating the contract if monies are owed to JJ Richards and allows JJ Richards to continue charging the small business for equipment rental after termination even if the services are no longer being provided.

ACCC is seeking declarations that these eight clauses are unfair and void.  It is also seeking an injunction to prevent JJ Richards from relying on those terms in future contracts with small businesses.

This action is a timely reminder that parties who are using standard form contracts should seek legal advice about whether the unfair contract regime applies and if so, whether the provisions of those contracts would be in breach of those obligations and void.

For advice in relation to your individual circumstances, please do not hesitate to contact our Senior Associate, Melanie Husband on 07 4036 9700.

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