A recent media release by the ACCC has shed further light on the ACCC’s view of what is “fair” when it comes to indemnities and limitations on liability in standard form small business contracts. This most recent development in the ACCC’s active campaign against unfair contract terms suggests companies need to tread very carefully to ensure that any indemnities and limitations on liability in their small business contracts are fair and not in breach of the Australian Consumer Law.
On 2 April 2019, the ACCC announced that three container stevedore companies have amended their standard form contracts following the ACCC having raised concerns that certain terms in those contracts were likely to be considered ‘unfair’ in breach of the Australian Consumer Law. This follows a string of investigations and proceedings by the ACCC in this area1. What is interesting about this particular case is the nature of the clauses that were considered likely to be ‘unfair’ by the ACCC.
Unilateral variations, automatic renewals and one-sided termination rights have been consistently targeted by the ACCC when investigating unfair contract terms. Interestingly, in this case, the ACCC raised concerns in relation to the unfairness of terms that provided for:
- limitations on liability for loss and damage that were not reciprocal for both parties; and
- indemnities for loss or damage that were not reciprocal for both parties.
The ACCC’s guidance on indemnities up to this point has largely been focussed on a failure to carve out liability for loss or damage caused by the indemnified party. In other words, it would be unfair for a party to receive the benefit of an indemnity for loss or damage it had itself caused. In the case of limits on liability, the ACCC’s guidance has generally focussed on overly broad or unreasonable limits on liability. However, this most recent announcement suggests that the ACCC requires complete reciprocity for indemnities and limits on liability.
Unfair terms are not currently illegal, but they may be declared by a Court to be void and unenforceable. Whilst this might be the current legislative state of play, the ACCC has made no secret of its desire for these laws to be strengthened by the imposition of substantial financial penalties2. Following a review of these laws by Treasury in late 2018, the Morrison Government announced plans to further strengthen protections to small business by reforming these laws in March of this year. The Government’s reforms were announced subject to further consultation with key stakeholders, but the package included a proposal to make unfair contract terms illegal and to attach unspecified civil penalties for breaches in order to provide a stronger deterrence factor.
Of course, with the Federal election now looming, the future of these reforms is somewhat unclear. However, with the Labor party having played an even stronger hand by committing to make unfair contract terms illegal and introducing fines up to $10 million for offences, the writing appears to be on the wall no matter the election outcome. Therefore, it is timelier than ever for business to get their house in order.