The new Unfair Contract Terms regime (introduced by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Amending Act), which amends the Competition and Consumer Act 2010 (Cth) (CCA)) commences on 9 November 2023, which applies to consumer contract and small business contracts entered, renewed, or amended on or after that date. The summary of the new regime is set out in our article Are your contracts ready for significant changes to unfair contract terms commencing on 9 November 2023?.
This article explores recent cases under the current unfair contract terms regime, as applying prior to the commencement of the Amending Act, to provide some examples of the kind of provisions that are unfair under the current regime. This article focuses on 5 broad categories being; automatic renewal terms, imbalance termination rights, imbalance limitation of liability and indemnities, unilateral variation terms and unilateral payment terms. The provisions determined to be unfair in this article would also be unfair under the new regime. It is important to note that under the new regime, the scope for unfair contract terms is widened as it also applies to clauses that the business purports to apply or rely on even if they do not enter into the contract.
Automatic renewal terms
These are terms that purport to give one party the unilateral right to extend a contract, especially without notice to the other party.
An example of a term that has been found to be unfair is:
“Unless [either party gives sufficient notice of termination] this Service Agreement shall from the Initial Term Ending Date continue as a periodic Service Agreement for ongoing periods equal to the duration of the Service Agreement term (as set out in section 7 overleaf), at a service fee which is appropriate at the time of such renewal as determined by Servcorp in its absolute direction and notified by it to the Client.” (ACCC v Servcorp Ltd [2018] FCA 1044 (Servcorp)).
This clause was unfair for the following reasons:
- there is no obligation for Servcorp to notify the client of any price increase prior to expiry of the notice period;
- it may result in the counterparty inadvertently missing the opportunity to terminate the contract, remaining contracted to Servcorp with no opportunity to terminate and not suffer financial detriment;
- Servcorp is more likely to be aware of when contracts are due for renewal than small business customers;
- small businesses may unknowingly find themselves locked into a new term at a higher price.
Other examples of terms that have been found to be unfair for similar reasons include:
- “The term shall be automatically renewed for further periods of [initial term] years thereafter unless terminated by either party giving written notice within 30 days prior to the end of the initial term or any renewed term.” (ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 (JJ Richards));
- “This clause provides for automatic renewals at Fujifilm’s standard rates at that time unless the customer gives notice of cancellation no less than 30 days before the renewal date.” (Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 928 (Fujifilm)).
Imbalanced termination rights
These terms purport to give one party the unilateral right to suspend performance for any reason without notice or that impose excessive early termination charges. An example of a term that has been found to be unfair is:
“Servcorp may terminate this Service Agreement by giving one month’s written notice to the Client at any time. If the Client fails to demand the refund of the security deposit within 360 days after the date of termination of this Service Agreement, the security deposit shall be deemed forfeited to Servcorp absolutely.” (Servcorp)
This clause was unfair for the following reasons:
Other examples of terms that have been found to be unfair for similar reasons include:
- “No termination without final payment. Payment in full of all monies outstanding must be made before this agreement can be terminated. The equipment will not be removed until such payment is made and rental for the equipment may be charged if delays in payment of the final account occur.” (JJ Richards)
- “If Fujifilm exercises its rights to terminate the contract then the customer must pay Fujifilm an amount which includes the unpaid balance of the licence fee for the remainder of the initial licence term and any other resource costs, including break costs, that Fujifilm incurs.” (Fujifilm)
Imbalanced limitation of liability or indemnity terms
These terms create low or one-way liability caps, one-way indemnity for breach of contract or indemnities with very limited exceptions for risks outside of the indemnifying party’s control.
An example of a term that has been found to be unfair is:
“With the exception of gross negligence or wilful misconduct, the Client shall expressly indemnify Servcorp, its employees, caretakers, cleaners, agents or invitees, against any theft or loss from the Office(s) or damage to the Office(s) and its contents attributable to the Client, howsoever occurring.” (Servcorp);
The reasons for this clause being unfair is:
Other examples of terms that have been found to be unfair for similar reasons include:
- Fujifilm is given significant caps, reductions or limitations on its total liability, but the customer is required to pay termination payments without any such reduction, cap or limitation (Fujifilm).
- “To the maximum extent permitted by law, the customer shall be responsible for and indemnify JJR from and in respect of all liabilities, claims, damages, actions, costs and expenses which may be incurred by JJR on a full indemnity basis (whether successful or not) as a result of or arising out of or otherwise in connection with this agreement, including any breach by the customer of any of the warranties, covenants and conditions herein.” (JJ Richards)
Unilateral variation terms
These terms grant one party the unilateral right to vary key terms or the product/service description.
An example of a term that has been found to be unfair is:
- “To pay during the term of the Service Agreement all charges for Services rendered by Servcorp to the Client at the rates stipulated by Servcorp from time to time. Servcorp reserves the right to change, review or vary the Services charges.” (Servcorp);
The reasons for this clause being unfair were:
- Servcorp can unilaterally vary the price payable for the services in its absolute discretion and without providing the counterparty with any notice;
- no limitation requiring Servcorp to act fairly or reasonably in any decision to change the pricing of the services or indeed consult with the counterparty;
- counterparty could be faced with having to pay higher service charges without any opportunity to negotiate the price or to receive any corresponding benefit.
Other examples of terms that have been found to be unfair for similar reasons include:
- “JJR may adjust its prices during the term of the agreement for reasons such as but not limited to increased operation costs, changes in disposal fees, site profitability, changes to disposal facility locations or increased government charges and levies by giving customers 30 days notice of such increase.” (JJ Richards)
- The customer must comply with Fujifilm’s “customer expectation documents” which can be amended without notifying the customer, and any reasonable directions issued by Fujifilm from time to time. This clause imposes obligations on the customer from the “customer expectation documents”, or “(where none is available) any end user documentation, manual or specification published by the manufacturer” which Fujifilm is not required to provide to the customer (Fujifilm).
Unfair payment terms
The types of unfair contract terms that have been challenged require pre-payment with no ability to get refund for unused product/services or terms which make charges payable without any performance by the supplier.
An example of a term that has been found to be unfair is:
- “No credit without notification. Unless previously notified JJR shall be entitled to render charges for the service if it attends the customer’s premises and is unable to perform the service due to holiday closure, lack of access or other reason. All credit requests must be within 14 days of invoice date.” (JJ Richards)
The reasons for this clause being held to be unfair are:
- it allows JJ Richards to charge JJR Customers for services it has not rendered for reasons beyond the JJR Customer’s control or potentially even for reasons that are due to circumstances within JJ Richards’ control, such as failure of its equipment.
- as JJ Richards is only required to use reasonable endeavours to perform collections at the agreed time, if JJ Richards attends the JJR Customer’s premises at a different time and is unable to collect the waste for any reason, JJ Richards can still charge the JJR Customer.
- this clause puts the onus on the JJR Customer to make a credit request, even if the non-performance is in no way the fault of the JJR Customer.
Other examples of clauses that were unfair include:
- Fujifilm may invoice the customer the purchase price on formation of the contract, which may be before Fujifilm have delivered any of the goods or services the subject of the purchase price (Fujifilm).
- “[KDC] will endeavor [sic] to follow the Cruise itinerary as described in the brochure and the passenger accepts that the carrier has the right to vary the itinerary or cancel the Cruise if the carrier considers that this is necessary as a result of some Unexpected Event or prevailing inclement weather conditions and the passenger accepts that the passenger will not be entitled to any compensation or a refund of the fare paid should this occur except as provided for in these Cruise Ticket Conditions.” (Ferme v Kimberley Discovery Cruises Pty Ltd [2015] FCCA 2384)
Other examples of unfair contract terms have been explored in our previous articles, including: ‘Ashley & Martin – Unfair contract terms in consumer contracts’ and ‘Cami and iTutor home tutoring software services – Unfair Contract Terms’.
What this means for your business?
It is prudent that every business reviews its contracts to determine whether or not the unfair contract terms regime applies to it, and if it does, that its contracts be reviewed to ensure that any contracts entered into, renewed, or amended, or that it purports to rely upon, after 9 November 2023 comply with the new regime to avoid the significant penalties commencing with the new regime.
This information is for information purposes only and is not legal advice. You should obtain advice that is specific to your circumstances 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.
