Unfair contract terms

13 September 2017

The Australian Competition and Consumer Commission (ACCC) has announced that it is taking waste management company JJ Richards to court over alleged breaches of the unfair contracts regime under the Australian Consumer Law [1] (ACL).

The unfair contracts terms provisions of the ACL were extended to apply to standard form contracts involving small businesses from 12 November 2016.

The allegations against JJ Richards are that the company entered into standard form contracts until at least April 2017 which contained unfair terms. As announced by the ACCC, the terms that are under scrutiny include:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
  • clauses allowing JJ Richards to unilaterally increase its prices;
  • removing JJ Richards’ liability if its performance is “prevented or hindered in any way”;
  • exclusivity rights to remove waste from a customer’s premises; and
  • unlimited indemnities in favour of JJ Richards.

If a standard form small business contract (including leases) is caught by the regime, and a clause is found to be unfair, that clause will be void.

A contract (including leases) will be a small business contract if:

  • the contract is for the supply of goods or services or a sale or grant of an interest in land;
  • at least one of the specific parties to the contract employs fewer than 20 employees; and
  • either of the following apply:
    • the upfront price payable does not exceed $300,000; or
    • if the term is more than 12 months, the total upfront price does not exceed $1 million.

There is no definition of standard form contract, however the ACL gives guidance as to relevant matters that will be taken into account, including whether:

  • one party has all or most of the bargaining power;
  • the party was in effect required to ether accept or reject it; and
  • the party was given an effective opportunity to negotiate the terms.

A term may be considered unfair if it:

  • would create a significant imbalance in the rights and obligations arising under the contract;
  • is not reasonably necessary to protect the legitimate interests of the party; and
  • would cause significant financial (or otherwise) detriment to a small business if it were relied on.

The court proceedings will be watched closely as the outcome may have wide-reaching effect on business and property owners and the parties who contract with them.

1 Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth).

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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