The ACCC has commenced its first Federal Court case under the November 2016 Australian Consumer Law unfair contracts provisions relating to small businesses.

The provisions apply to protect businesses with less than 20 employees where the upfront price payable under the contract is less than $300,000.

On 6 September 2017 the ACCC issued Federal Court proceedings against waste management company JJ Richards & Sons. The ACCC alleges that various terms in JJ Richards’ standard form contract are unfair and should be declared void and of no effect because they go beyond what is reasonably necessary to protect JJ Richards’ legitimate interests.

The claim alleges that 8 terms in JJ Richards’ standard contract are unfair. The terms being challenged are:

  • Automatic renewal – provides that the contract term automatically renews unless the small business terminates within the last 30 days of the existing term;
  • Unilateral price variation - allows JJ Richards to unilaterally change its prices during the contract term;
  • Failure to provide services within agreed times - seeks to absolve JJ Richards of liability for breach if it fails to provide its services within agreed times;
  • No credit without notification – the onus is on the customer to apply for a credit where JJ Richards fails to provide the services, yet JJ Richards only has to use best endeavours to provide services within agreed times;
  • Exclusivity - prevents small businesses from obtaining waste management services from a third party during the contract term, even if such services are not provided JJ Richards;
  • Credit terms - requires the small business to pay accounts within 7 days, failing which JJ Richards may suspend the services but continue to charge fees;
  • Indemnity - requires the small business to grant an unlimited indemnity in favour of JJ Richards even if the small business did not cause the loss;
  • Termination –prevents the small business from terminating if monies are owed to JJ Richards, and entitles JJ Richards to continue charging for equipment rental after termination even though services are no longer being provided.

The ACCC challenges each term on a stand-alone basis, but also for the way in which they interact to produce an unfair result. For example, if a customer is behind on payments, it cannot terminate the contract, but JJ Richards can suspend services, continue to charge, and the contract term may even automatically renew. This would lock the small business into a debt cycle with no ability to stop charges from continuing to accrue.

Automatic renewal and unilateral price variation clauses are commonly used by companies that provide services for set periods of time. The proceeding will therefore be closely watched by many traders who have similar standard terms.

The proceeding is another reminder just before the anniversary of the commencement of the change to the law that traders who use standard form contracts should seek legal advice about whether their standard terms may be considered unfair if challenged under the ACL.

You can also reference a previous article on the changes to the law, New unfair contract term protections for small business almost here! Also see our recent alert noting a decision by VCAT which showed the Tribunal’s willingness to enforce the ACL unfair contracts provisions against traders that operate using standard form contracts containing unfair terms.