From 12 November 2016, new legislation was implemented whereby unfair contract term protections were extended to cover small business contracts rather than just contracts between individual consumers. This has had significant implications for business to business transactions and we are now seeing the Australian Competition & Consumer Commission (â€œACCCâ€) take steps to enforce the protections afforded by the extended unfair contract terms in seeking to have contract terms in certain contracts deemed void.
One recent and significant example is action taken by the ACCC against JJ Richards & Sons Pty Ltd (â€œJJ Richardsâ€) in the Federal Court of Australia seeking declarations that certain terms in the standard form contract used by JJ Richards from 12 November 2016 were void and unenforceable. JJ Richards is one of the largest privately owned waste management companies in Australia and provides recycling, sanitary and green waste collection services.
To provide a background to the changes in the unfair contract term legislation we advise as follows:
(a) Contracts covered by extension of the protections
The new legislation will apply to small business contracts in standard form entered into or renewed on or after 12 November 2016. The following contracts will be affected:
(i) Where the contract is for the supply of goods or services or the sale of an interest in land;
(ii) At least one party is a small business, being a business that employs less than 20 people;
(iii) The upfront price payable under the contract is no more than $300,000.00 or $1,000,000.00 if the contract is for a term of more than 12 months.
(b) What is a standard form contract
A standard from contract is one that has been prepared by one party to the contract and the other party has little or no opportunity to negotiate the terms that is, it is offered on a â€œtake it or leave itâ€ basis.
(c) What is an unfair contract term
Under the Australian Consumer Law, an unfair contract term is a term that:
(i) Causes significant imbalance in the parties' rights and obligations;
(ii) Is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
(iii) Causes detriment (financial or otherwise) to a party if it were to be relied upon.
In order for a term to be unfair, it must satisfy all criteria. The Court will look at the contract as a whole to determine whether the term is unfair.
JJ RICHARDSON CASE
As one of the first court actions brought by the ACCC, declarations were sought seeking the following contract terms as void an unenforceable in the standard form contract used by JJ Richards:
(i) Binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term or otherwise known as roll over terms;
(ii) Allowing JJ Richards to unilaterally increase its price without reference to the other party;
(iii) Removing any liability for JJ Richards its performance is â€œprevented or hindered in any wayâ€;
(iv) Allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer's control;
(v) Granting JJ Richards exclusive rights to remove waste from a customer's premises;
(vi) Allowing JJ Richards to suspend its services but continue to charge the customer if payment is not made after seven days;
(vii) Creating an unlimited indemnity in favour of JJ Richards;
(viii) 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.
The Court held that when read together as whole in the contract, all the above terms exacerbated each other and increased the overall imbalance between the parties and the risk of detriment to JJ Richards comments.
The declarations sought were ultimately consented to by JJ Richards in the court proceedings and thus the above terms were deemed by the Court to be unfair contract terms.
JJ Richards consented to orders restraining it from relying on the deemed unfair terms existing in their small business contracts and from using such terms in future contracts. JJ Richards also consented to publishing a corrective notice and providing a copy of the court orders to all its small business customers which are parties to an affected contract.
If a term in a contract is deemed void, the remainder of the contract continues to bind the parties to the extent that it can operate without the unfair term.
The JJ Richardson case is an example and indication that the ACCC is targeting unfair contracts as a matter of priority and it has already targeted a number of companies regarding their terms.