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Small business contracts: When is a term fair?

Small business contracts: When is a term fair?

13 Nov 2017

Small business contracts: When is a term fair?
WRITTEN BY
Jack Shepherd
Jack Shepherd
Associate

Small business contracts: When is a term fair?

13 Nov 2017

Article written by: Jack Shepherd

Many businesses regularly engage with standard form contracts. But how do you know if the terms of a standard form contract are “unfair”? As we wrote on 26 September 2017, the Australian Consumer Law now protects against unfair contract terms in small business contracts and the Australian Competition and Consumer Commission (ACCC) is taking action to stamp out unfair terms.
 
Federal Court Action Against JJ Richards
 
In the recent case of Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224, the ACCC took action in the Federal Court against JJ Richards for including unfair terms in its standard contracts for waste removal services. JJ Richards had entered into about 26,000 of these standard contracts, and in many of the cases they contracted with small businesses.  In the proceedings, JJ Richards accepted that its contracts contained unfair terms and consented to declarations and injunctive orders against it.
 
Unfair Terms
 
JJ Richards accepted that 8 of the terms in its standard contract were unfair, including the following:-
  • “The Term....The term shall automatically renew for further periods of five years thereafter unless terminated by either party giving written notice within 30 days prior to the end of the initial term or any renewed term.”
  • “Price Variations. JJR may adjust its prices during the term of the agreement for reasons such as but not limited to increased operation costs, changes in disposal fees, site profitability, changes to disposal facility locations or increased government charges and levies by giving customers 30 days notice of such increase.”
  • “Agreed Times. JJR will use all reasonable endeavours to perform the collection at the times agreed but accepts no liability where such performance is prevented or hindered in any way.”
Justice Moshinsky agreed that the terms were unfair within the meaning of section 24 of the Australian Consumer Law and rendered void by the operation of section 23(i). The terms under challenge were considered unfair because the rights and obligations of the parties were not broadly balanced. The first example above gave the customer only 30 days every 5 years in which to consider changing their service provider. In the second, the ability of JJR to vary its prices was broad and unilateral, without a corresponding right of the customer such as to terminate the contract. The third lumped responsibility on the customer even when the situation was completely out of their control.

To put it another way, imagine the entire contract is like a see-saw. Each side has rights under the contract and obligations to perform. On balance, is the saw roughly level, or is one party much higher than the other? A number of the unfair terms in this case placed an undue administrative burden on the small business customer, who had limited resources, and other terms made the customer liable for events outside its control.
 
Consequences for JJ Richards
What happens to unfair contract terms? Orders were made in the proceedings that JJ Richards:
  • Not rely upon the particular terms in various existing contracts;
  • Not use the same terms in future contracts;
  • Publish a notice on its website;
  • Send a copy of the court orders to every small business customer who was party to an applicable contract.

If you want specific advice on whether your contract might contain unfair terms or what you can do if you are party to an unfair contract, don’t hesitate to contact us on 1300 565 846.
The content of this article is general in nature, and is intended to provide commentary only. It does not constitute advice, and should not be relied upon as legal advice. Targeted formal legal advice should be obtained prior to any action being taken in relation to a matter arising in response to the content of this article.
 

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