December 3, 2017

Unfair contract terms for small businesses: ACCC v JJ Richards

Unfair Contracts

This time last year, the protections against unfair contract terms were extended under the Australian Consumer Law (ACL) to include standard form contracts involving small businesses.

A ‘standard form contract’ is generally a pre-prepared contract which offers the same or similar terms to all consumers, and is often utilised by larger businesses to improve efficiency.

In conjunction with the new laws surrounding standard form contracts, the ACCC has ramped up its efforts to investigate businesses relying upon unfair contract terms. This recently culminated in the commencement of proceedings against JJ Richards & Sons Pty Ltd (JJ Richards), in which the ACCC sought to enforce the extended provisions. In the proceedings, the ACCC alleged that many of JJ Richards’ clauses:

  • created a “significant imbalance” in the rights and obligations of JJ Richards and small businesses;
  • were not reasonably necessary to protect JJ Richards’ legitimate interests; and
  • would, if relied upon, cause significant financial detriment to small businesses.

The Federal Court of Australia recently delivered its judgment[1] and found that, of the eighteen terms contained within JJ Richards’ standard form contracts, the following eight terms were “unfair” and subsequently declared void:

1. Automatic renewal: this clause bound customers to subsequent contracts unless they called the contract within 30 days before the end of the term.

2. Price variation: allowing JJ Richards to unilaterally increase its prices.

3. Agreed Terms: removing any liability for JJ Richards where its performance is “prevented or hindered in any way”.

4. No credit without notification: allowing JJ Richards to charge customers for services not rendered for reasons that are beyond the customer’s control.

5. Exclusivity: granting JJ Richards exclusive rights to remove waste from a customer’s premises.

6. Credit terms: allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days.

7. Indemnity: creating an unlimited indemnity in favour of JJ Richards.

8. Termination: preventing customers from terminating their contracts if they have payments outstanding and entitles JJ Richards to continue charging customers equipment rental after the termination of the contract.

The case, the first of its kind, is a timely reminder that businesses should take care when reviewing their standard form contracts. Businesses should consider revising any clauses which create a significant imbalance between the parties, and are likely to be considered unreasonable. Failure to do so may render these clauses void if challenged under the ACL’s new laws.

For further information, please refer to the Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224.

If you need assistance in reviewing your standard form contracts, please contact Rouse Lawyers.