Federal Court rules on unfair contract terms


Posted By on 1/11/17 at 11:45 AM

By Chrystie Siapkas (Lawyer) and Paul Welling (Principal Solicitor)

A recent Federal Court decision regarding the unfair contract terms regime provides valuable guidance for businesses regarding the types of terms which may be declared void.

 

Background

Unfair contract terms

 

In November 2016, the existing unfair contract term protections for individual consumers were extended to cover standard form contracts with small businesses.  The effect of this is that unfair terms in contracts with small businesses can now be declared void (we summarised the changes in an earlier post).

JJ Richards & Sons Pty Ltd (JJ Richards) is one of Australia’s largest privately-owned waste management companies and provides waste collection services.  The ACCC instituted proceedings against JJ Richards in the Federal Court, alleging that several clauses in its standard form contracts for small business breached the unfair contract terms provisions of the Australian Consumer Law.

What happened?

Earlier this month, the Federal Court declared (by consent) that eight terms in the standard form contract used by JJ Richards to engage small businesses were unfair, and therefore void.

The terms declared by the Court to be “unfair” had the effect of:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
  • allowing JJ Richards to unilaterally increase its prices;
  • removing any liability for JJ Richards where its performance is “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 is not made after seven days;
  • creating an unlimited indemnity in favour of JJ Richards; and
  • preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

What does this mean?

The effect of this decision is significant.

ACCC Deputy Chair, Dr Michael Schaper, commented that “This is the first court action by the ACCC to enforce new laws that protect small businesses from unfair contract terms.

Under Australian Consumer Law, terms that create a significant power imbalance between parties, are not necessary to protect legitimate interests, and which would cause significant financial detriment to a small business if relied on, are unfair and void.”

We encourage all businesses to review their standard form contracts for small business to remove any terms that may be deemed unfair.

Please don’t hesitate to contact us if you have any questions about the decision, or if you require assistance with identifying, amending or removing any potentially unfair terms in your standard form contracts.

Paul Welling Principal Solicitor

Paul Welling joins KHQ as the leader of our litigation team. He spent over a decade at a top tier national law firm and is a highly experienced litigator specialising in all areas of complex commercial... Read More