ACCC reaches agreement with waste management firm for unfair terms in small business contracts

Last year, amendments to the Australian Consumer Law extended unfair contract terms provisions to small business contracts. These amendments apply to standard form contracts entered into or renewed after 12 November 2016.

For the purpose of these laws, a contract is a ‘small business contract’ if the following criteria are met:

1. the contract is for the supply of goods and services;
2. at the time the parties entered into the agreement, at least one party to the contract is a business that employs less than 20 people; and
3. either the price payable under the contract is less than $300,000, or the contract has a duration of more than 12 months and the upfront price payable under the contract is less than $1,000,000.

Recently, the unfair contracting provisions were applied to standard form contracts between a waste management provider and 26,000 businesses.

Case example: Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd

Recently, the ACCC reached agreement by consent orders with waste management firm, JJ Richards, regarding unfair terms in standard form contracts provided to small businesses. The ACCC alleged that eight clauses of these standard form contracts were unfair for the purposes of the Australian Consumer Law (ACL).

The ACL outlines that a term of a small business contract is unfair if:

• it would cause a significant imbalance in the rights and obligations of the parties under the contract;
• it is not reasonably necessary to protect the legitimate interests of the party that would have benefited from the term; and
• it would cause detriment to a party if it were to be applied or relied upon.

The ACL also provides that in considering whether a term is transparent, the court must consider the extent to which the term is ‘transparent’, and the operation of the contract as a whole. A term is ‘transparent’ if it is expressed in reasonably plain language, presented clearly, legible, and readily available to any party that is affected by the term.

In the JJ Richards case, the problematic clauses had the following effect:

• automatic renewal of the contract unless the customer cancelled the contract within 30 days of the initial term;
• a unilateral right for JJ Richards to increase the price of the service on 30 days notice (without an accompanying right for the customer to terminate or vary the scale or scope of the services)
• a waiver of liability where performance of the services was prevented or hindered in any way that was not the fault of JJ Richards (even if thus was not the fault of the customer)
• charges for services where JJ Richards attended the premises but was unable to provide the services (e.g. due to failure of equipment)
• an exclusive right ofr JJ Richards to provide waste management services for the relevant premises (even if the customer is seeking additional services to those provided by JJ Richards & Sons);
• suspension of the services if an invoice was not paid within 7 days; and
• unlimited indemnification benefiting JJ Richards.

Moshinsky J found these terms to be unfair, and also commented that they were not transparent. He found that the clauses were drafted in an overly legal manner, rather than in plain English, and were not readily accessible to a small business owner.

JJ Richards consented to orders made by the Court that restrained it from relying on these terms in existing small business contracts, and prevented it from using these terms in future small business contracts. They were also required to provide the orders to all affected small business customers.

Key lessons

If you contract with small businesses, you must ensure that your standard form contracts do not contain unfair terms. The clauses above are useful examples of the kinds of clauses that will be considered to be unfair in small business contracts. Further examples can be found in section 25 of the Australian Consumer Law.

You also need to assess what terms are reasonably necessary to protect your business interests. Carefully consider clauses which tip the balance of power to a particular party, or cause detriment to a party. If a small business claims that the terms of your contract are unfair (or you wish to allege the same), you should seek specialist legal advice.

Want to know more about the application of Australian Consumer Law to small business contracts? Looking for an experienced solicitor in Newcastle, Sydney or the Hunter to assist you with your business contracts? Call us on (02) 4929 7002, email us or complete an enquiry form.