The new B2B unfair terms regime is being put to the test by the ACCC with a number of in-depth industry-specific investigations underway

Hot on the heels of the ACCC’s 2017 enforcement priorities comes a clear warning from the ACCC that it will take enforcement action this year against multiple companies under the new B2B unfair terms regime. This follows an ACCC report late last year and a number of complaints to the ACCC in this area.

In November last year, in anticipation of the commencement of the new regime, the ACCC undertook a targeted review of 46 standard form small business contracts in seven industries that represented a high level of complaints to the ACCC about standard form agreement terms. These industries were (1) advertising; (2) retail leasing; (3) franchising; (4) agriculture; (5) independent contracting; (6) telecommunications; and (7) waste management. The ACCC published a report outlining its observations from this review.

However, the ACCC noted that while some businesses removed or amended terms from their standard form agreements that the regulator identified as problematic, not all did so. In addition, the ACCC has already received 48 complaints from businesses about unfair terms in the 4 or so months since the new regime commenced.

The ACCC says that it identified a number of terms as being potentially unfair but that these continue to be used in standard form contracts, including:

  • clauses affording the unreasonable ability to end or cancel an agreement;
  • broad indemnity clauses or clauses granting excessive limitations on liability, which give one party the broad and unreasonable power to protect itself against loss or damage at the expense of small businesses;
  • clauses providing one party with the ability to unilaterally change the terms of a contract; and
  • clauses which unreasonably limit or prevent small businesses from exiting their contracts.

The regulator has reported that a number of in-depth investigations have already commenced in relation to the use to the use of potentially unfair terms in B2B contracts. These investigations were commenced either due to issues identified by the ACCC in its November 2016 report, or as a result of the complaints received from small businesses. In addition to the above listed “problematic” clauses, one further “area of investigation” identified by the ACCC is unfair payment terms and commercial practices that have the effect of delaying the time that suppliers will be paid.

Against this backdrop, ACCC Deputy Chair Dr Michael Schaper has stated that the ACCC will take enforcement against multiple companies this year, noting that:

“Our enforcement teams are looking at a variety of contract across a range of industries…Businesses that seek to tip the scales too far in their favour at the expense of small businesses leave themselves open to court action by the ACCC”.

Take care – B2B unfair terms a 2017 priority

The ACCC’s position is not surprising. The regulator made it clear earlier this year that one of its key enforcement priorities in 2017 is to ensure that small businesses receive protection under the new B2B unfair terms regime.

It is ultimately the role of the Court to determine whether a contractual term is “unfair”. However the ACCC’s willingness to investigate and pursue enforcement action against large businesses who have not heeded its earlier warnings about “problematic clauses”, and its preparedness to test the boundaries of the law, should provide further impetus for businesses to review their standard form contracts, to avoid scrutiny from the ACCC in this area.

Recap of the new regime

As we have previously blogged, the extension of the unfair terms regime under the Australian Consumer Law (ACL) to certain business-to-business contracts took effect on 12 November 2016. The extended regime applies to:

  • standard form contracts;
  • where one of the businesses contracting has fewer than 20 employees; and
  • the upfront contract value is less than $300,000 in a single year or is less than $1 million if the contract runs over more than one year

(for more detail on the regime, see our earlier blog here).