Unfair contract terms

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UPDATE: In the JJ Richards matter the Federal Court has declared by consent that eight of the terms in the contract were unfair contract terms. The unfair terms are set out below. See ACCC MR 176/17

The Australian Competition and Consumer Commission (ACCC) has recently instituted two proceedings in relation to unfair contract terms. These are the first proceedings instituted by the ACCC under the new laws that protect small businesses from unfair contract terms.

JJ Richards

JJ Richards & Sons Pty Ltd is one of the largest waste management companies in Australia.

The unfair terms:

  • 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 for reasons that are 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 entitles JJ Richards to continue charging customers equipment rental after the termination of the contract.

ACCC alleges the terms are unfair because they:

  • create a significant imbalance in the rights and obligations of JJ Richards and small businesses
  • are not reasonably necessary to protect JJ Richard’s legitimate interests
  • would, if relied on, cause significant financial detriment to small businesses.

Source: MR 151/17

Servcorp

The ACCC has instituted proceedings against Servcorp Ltd and two of its subsidiaries. Servcorp supplies office space and virtual office services such as office suites, secretarial services, IT, communications and personal assistants.

The unfair terms:

  • automatically renew a customer’s contract and allow Servcorp to unilaterally increase the contract price after the renewal and without prior notice to the customer
  • permit Servcorp to unilaterally terminate the contract and to impose penalty-type consequences on the customer
  • unreasonably limit Servcorp’s liability or which impose unreasonable liability on the customer
  • permit Servcorp to unilaterally determine whether the contract has been breached
  • permit Servcorp to unilaterally acquire the customer’s property without any notice.

The ACCC is concerned about the ability of Servcorp to unilaterally terminate a contract and apply unreasonable termination fees. It also received a number of complaints about Servcorp automatically renewing contracts and then increasing the rental.

Source: MR 154/17.

We will follow the progress of these cases and provide updates.

On 12 November 2016 a new law was introduced to protect small businesses from unfair terms in B2B standard contracts. A number of companies amended their contracts following the introduction of the law.

Further information about Unfair terms in small business is available from the ACCC here.

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