B2B unfair contract terms being tested by ACCC

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The business to business unfair contract terms in standard form contracts laws commenced on 12 November 2016.

In summary, these laws make unfair terms void in standard form contracts entered into between businesses where one business employs less than 20 people and the ‘upfront price payable’ is $300,000 or, if the contract runs for more than a year, up to $1 million.  These are typically your terms and conditions of sale or purchase, supply agreement and the like.

An unfair contract term is one that:

  • will cause a significant imbalance in the parties rights and obligations arising under the contract;
  • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by them; and
  • would cause detriment to a party if it were to be applied or relied upon.

First Court Proceedings

For the first time, on 6 September 2017, the ACCC instituted Federal Court proceedings enforcing the new laws.  The first cab off the rank being JJ Richards & Sons Pty Ltd (JJ Richards), against whom the ACCC is alleging that clauses within its standard form small business contract are void and unenforceable because they are unfair under the Australian Consumer Law (ACL).  JJ Richards is one of the largest privately owned waste management companies in Australia.

The ACCC alleges that the following terms within JJ Richards standard form small business contracts are unfair:

  • binding customers to subsequent contracts unless the customer cancels the contract within 30 days before the end of the term;
  • JJ Richards may unilaterally increase prices;
  • JJ Richards is not liable where its performance is prevented or hindered in any way;
  • JJ Richards can charge customers for services not rendered for reasons beyond the customer’s control;
  • exclusivity being granted to JJ Richards for providing waste management services to the customer;
  • JJ Richards being entitled to continue to charge customers where service is suspended for payment not made within 7 days;
  • unlimited indemnity in favour of JJ Richards;
  • customers being prevented from terminating the contract if payments are outstanding; and
  • and JJ Richards may continue charging customers for equipment rental after termination of the contract.

Second Court Proceedings

On 15 September 2017, the ACCC instituted its second Federal Court proceedings against Servcorp Limited and two of its subsidiaries (Servcorp).  Servcorp is a large privately listed company that supplies serviced office space and virtual offices suites.

In these proceedings, the ACCC alleges that the following terms within Servcorp’s standard form small business contracts are unfair:

  • automatic renewal of customer contracts;
  • Servcorp may unilaterally increase prices;
  • Servcorp may unilaterally terminate the contract and impose penalty-type consequences on the customer;
  • Unreasonably limit Servcorp’s liability or impose unreasonable liability on the customer;
  • Servcorp may unilaterally determine whether the contract has been breached;
  • Servcorp may unilaterally acquire the customer’s property without any notice.

ACCC’s position

The ACCC has made its point very clear.  It is ‘committed to ensuring that small businesses receive the protection of the new business-to-business unfair contract terms law’ and that these proceedings should ‘serve as a reminder to large businesses that haven’t already [reviewed] their standard form contracts to ensure they aren’t considered to be unfair under the changes to the law’.

What this means for your business?

We strongly urge all businesses that deal with small business to review their standard form contracts.  This way rather than having any unfair contract terms in the contract being void and unenforceable, the terms can be crafted in such a manner that they are not unfair and are enforceable. This is a better position than the unfair terms being completely unenforceable.

The additional risk in doing nothing if there are unfair contract terms in your small business standard form contracts is that the ACCC may pursue the offending party by seeking:

  • an injunction to prevent the party from relying on its standard form contract;
  • declaration that the terms are unfair and consequently void;
  • publication orders;
  • compliance program orders; and
  • costs.

At Bryks Lawyers we have extensive experience in all things related to Australian Consumer Law.  Start the conversation today!

This information is for information purposes only and is not legal advice. You should obtain advice that is specific to your circumstance and not rely on this publication as legal advice. Please contact us if you wish for us to advise you on any issue you may have arising from this publication.

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