The recent judgement is interesting as it shows that Courts will not only consider stand-alone terms, but also how they interact with each other in impacting the rights of the small business customer, which many businesses may not have expected. Have you considered your contracts on that basis?
JJ Richards contravention of the Australia Consumer Law (ACL)
On 6 September 2017, the ACCC commenced proceedings in the Federal Court against JJ Richards, one of the largest waste management companies in Australia providing recycling, sanitary and green waste collection services. The ACCC alleged that eight clauses in JJ Richards standard form small business contract were unfair and therefore void and unenforceable.
The contracts fell within the statutory regime as they were:
- for the supply of goods or services
- with a party that was a business employing fewer than twenty people and
- for amounts that fell under either of the respective monetary caps for contracts of less than and more than one year.
The ACCC alleged that terms in JJ Richards standard form contract that gave JJ Richards the following rights or created the following obligations were unfair. The terms included:
- automatically binding customers to subsequent contracts unless they cancelled the contract within 30 days before the end of the term
- allowed JJ Richards to unilaterally increase its prices
- excluded liability for JJ Richards where its performance was prevented or hindered in any way
- allowing JJ Richards to charge customers for services not rendered even when caused by reasons beyond the customer’s control
- granting JJ Richards exclusive rights to remove waste from a customer’s premises
- allowing JJ Richards to suspend its service but continue to charge the customer if payment was not made within seven days
- creating an unlimited indemnity in favour of JJ Richards
- preventing customers from terminating contracts if they had outstanding payments and entitled JJ Richards to continue charging customers for equipment rental after termination, (together, Impugned Terms).
The basis for the Court’s findings
On 16 October 2017, the Federal Court declared that all Impugned Terms were unfair and therefore void and unenforceable. It found that a term is unfair and will be declared void and unenforceable, if it would cause a significant imbalance in the parties’ rights, is not reasonably necessary to protect the advantaged party’s interests and would cause detriment to the disadvantaged party. While JJ Richards initially did not appear to take the ACCC’s concerns seriously, ultimately they conceded and did not defend the proceedings so that the final orders were made by consent.
The lack of defence prevented any in-depth consideration of the underlying principles. However, the judgement of the Court still provides some guidance on the interpretation and application of the unfair contract regime. The Court accepted the parties’ joint submissions that:
- each of the Impugned Terms created a significant imbalance between JJ Richards’ and its customers’ rights and obligations arising under the standard form contracts
- each of the Impugned Terms were not reasonably necessary to protect JJ Richards’ legitimate business interests
- each of the impugned terms would cause detriment to the customer if relied on by JJ Richards.
The Court noted that it was satisfied that the Impugned Terms were not ‘transparent’, as the standard terms of JJ Richards’ standard form contract were drafted in legal language, rather than plain English. Further, the Impugned Terms were not presented in a matter that was clear and accessible to a small business customer due to a number of factors including that the terms were printed in a very small font size.
In noting that it must consider the contract as a whole to determine whether the other terms of the contract add to the impact of the Impugned Terms, the Court found no evidence that this was the case and instead found that the Impugned Terms operated in a way that actually exacerbated each other, increasing the imbalance between the parties and detriment caused to the customer. As an example, the Court noted that terms (c) and (d) above may have interacted in a way that allowed JJ Richards to attend to make a collection outside of agreed hours or even fail to collect and then still charge the customer for the service.
What does this mean for your business?
The key takeaway from the proceedings against JJ Richards is that businesses who have small business customers must review their standard form contracts and consider whether the terms are reasonable and justified to protect their legitimate interests under the new statutory regime. This review should be undertaken for any new standard form contracts and those executed on or after 12 November 2016.
Significantly, it is not always obvious if a contract term is ‘fair’ as the unfairness can arise either by operation of the term on its own or in combination with other terms. Stand-alone terms that the ACCC has previously criticised include ones that:
- provide a party with a unilateral right to terminate or vary the rights and obligations imposed by the contract
- give exclusivity to a party despite not being necessary for the operation of the business
- automatically renew the contract without providing notice to customers
- provide wide and unlimited indemnities to the business
- penalise one party for breaching or terminating the contract.
The ACCC’s commitment to enforcing the unfair contract term regime on small business contracts is highlighted by the recent proceedings commenced by the ACCC against Servcorp, alleging 19 terms in its service agreement used with small business clients are unfair. The proceedings are currently before the Court. This emphasises the importance of ensuring that your business’ standard form contract includes only those terms necessary and justified for the protection of its legitimate interests.