In its first decision under the new unfair contracts regime that extends to standard form small business contracts, the Federal Court has found several terms to be unfair, and therefore, void.

In October we published an article on our website about pending court proceedings in which the Australian Competition and Consumer Commission (ACCC) was pursuing a garbage and waste management company, J.J. Richards & Sons Pty Ltd (J.J. Richards), under the new unfair contract provisions of the Australian Consumer Law (ACL). The unfair contract provisions of the ACL are designed to protect small businesses by rendering terms in standard form contracts that are unfair void and unenforceable.

Since our previous article, the Court has handed down its decision.

The Decision

In Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224, the Court declared, by consent, that several clauses of J.J. Richards’ standard form contracts with its customers were unfair and therefore void, including clauses which purported to:

  1. bind customers automatically to subsequent contracts unless the contract is cancelled within 30 days before the end of the term (automatic renewal clause);
  2. allow J.J. Richards to increase its prices without the consent of the customer (price variation clause);
  3. deny any liability for J.J. Richards where its performance is “prevented or hindered in any way”, including where J.J. Richards’ customers were not responsible (performance clause);
  4. permit J.J. Richards to charge for services not rendered for reasons beyond the customer’s control (unfair charges clause);
  5. allow J.J. Richards exclusive rights to remove waste from customer premises (exclusivity clause);
  6. force customers to continue to pay, even when J.J Richards’ service is suspended (suspension clause);
  7. prevent customers from terminating their contracts if they have payments outstanding (indemnity clause); and
  8. allow J.J. Richards to continue charging customers for equipment rental, even after the termination of the contract (termination clause).

The Court held that these terms were unfair because they:

  1. created significant imbalances between J.J. Richards and its customers;
  2. were not reasonably necessary to protect J.J. Richards’ legitimate business interests; and
  3. would cause detriment if J.J. Richards were able to rely on them.

In his judgment, Moshinsky J noted that contracts must be assessed as a whole when determining whether certain clauses are unfair, and that in this instance, the impugned terms “tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment” to J.J. Richards’ customers”.

Moshinsky J also found that, because the impugned terms were drafted in legal language and were presented to J.J. Richards customers in small font, the terms were not transparent. Although a lack of transparency is not determinative, it may be a contributing factor to the conclusion that a contract term is unfair.

The effect of being rendered void is that these clauses are treated as though they never existed. This means that, the remainder of the contracts will continue to be effective to the extent that they can operate without the impugned clauses. In addition to declaring the terms void, the Court made orders, by consent, for injunctions:

  1. restraining J.J. Richards from relying on any of the impugned terms or from using the terms in any future standard form contracts with small businesses; and
  2. requiring J.J. Richards to publish a corrective notice, provide a copy of the Court’s orders to all of its small business customers, and implement a compliance program.

What does this mean for you?

This decision is significant because it is the first time that these new provisions have been enforced by the courts and indicates a willingness on the part of the ACCC to crack down on businesses relying on unfair clauses in their contracts with small businesses.

If you use standard form contracts as part of your business, it is essential that you have those contracts reviewed by an experienced legal professional. As the above demonstrates, even font size and drafting style may be relevant in determining whether your contractual terms are fair and enforceable.

As the test for unfairness is fact-dependent, it may not seem immediately obvious which terms are allowable, and which will cross the line to disadvantage small businesses and therefore become unfair terms for the purposes of the Australian Consumer Law. As this decision demonstrates, the courts are willing not only to strike out unfair contract terms, but also to compel businesses to publicise the decisions against them, and to take proactive steps to avoid further breaches of the ACL.