On 12 November 2016, amendments to the Australian Consumer Law (ACL) extended existing consumer unfair contract protections to include small businesses (the B2B Laws). We have been closely tracking the development of the new small business unfair contract provisions. In the first B2B unfair contracts litigation brought by the Australian Competition and Consumer Commission (the ACCC), eight terms in a standard form contract used by JJ Richards & Sons were declared void. In this article, Susan Moran, Principal of our Dispute Resolution team, explains the implications of the case on small businesses and larger businesses who use standard form contracts. SWS Lawyers has expertise in advising businesses on all aspects of the ACL and assisting in the negotiation of commercial contracts.
The B2B Laws prevent a business relying on, and enforcing, its standard contract terms in circumstances where those terms:
- create a significant imbalance between the parties’ rights and obligations under the contract;
- are not necessary to protect the legitimate business interests of the party relying on the terms; and
- would cause detriment to a party if they were relied upon.
The B2B Laws only apply to ‘small business contracts’. A contract will be a ‘small business contract’ if:
- the counterparty to the standard terms employs less than 20 persons; and
- the upfront price of the contract is no higher than $300,000, or $1 million if the duration of the contract is for more than 12 months.
JJ Richards & Sons Pty Ltd (JJ Richards) is the largest privately owned waste management company in Australia. On 6 December 2016, the ACCC wrote to JJ Richards drawing its attention to an ACCC report on the new B2B Laws and informing it the ACCC had commenced an investigation into the terms of its contracts. Further, the ACCC requested copies of JJ Richards contracts relevant to the investigation, a process which would not be complied with until April 2017.
On 6 September 2017, the ACCC commenced proceedings against JJ Richards alleging it had entered into, or renewed, unfair small business contracts in contravention of the B2B Laws.
The ACCC alleged the following eight terms within JJ Richards’ standard contracts were unfair:
- ‘Automatic renewal clause’ which automatically renewed the term of a contract unless the customer gave 30 days’ cancellation notice prior to the end of the contract term;
- ‘Price variation clause’ which allowed for JJ Richards to unilaterally adjust its price by giving 30 days’ notice to the customer;
- ‘Agreed times clause’ which removed any liability on JJ Richards should they be unable to perform a collection at the times agreed with the customer;
- ‘No credit without notification clause’ where a customer could be charged if JJ Richards attends the premises and was unable to perform the service due to reasons outside the control of the customer;
- ‘Exclusivity clause’ which granted JJ Richards exclusive rights to remove waste from the premises during the term of the agreement;
- ‘Credit terms clause’ which allowed JJ Richards to continue charging the customer fees despite the suspension of the service following a customer’s failure to pay within 7 days;
- ‘Indemnity clause’ which required the customer to fully indemnify JJ Richards for any loss it may sustain as a result of, or in connection to, the agreement; and
- ‘Termination clause’ which prevented the customer from cancelling the agreement unless all outstanding monies have been paid and allowed JJ Richards to continue charging for equipment rental during this time,
(the Impugned Terms).
In October 2017, JJ Richards accepted its small business contracts were unfair by admitting to the Court that the Impugned Terms created a significant imbalance with the contracting parties, were not necessary to protect its legitimate business interests and would cause detriment to the other contracting party if JJ Richards were to rely upon them. With the consent of the parties, the Federal Court found the Impugned Terms to be void, preventing JJ Richards from relying on them, and ordered the following:
- JJ Richards be restrained from relying on the Impugned Terms;
- JJ Richards be restrained from including the Impugned Terms in a standard form contract for 5 years;
- JJ Richards to publish a corrective notice on its homepage, customer portal and any other URL used to market and supply waste management services;
- JJ Richards to provide each person who was a party to a small business contract affected by the Impugned Terms with a copy of the orders; and
- JJ Richards to implement an ACL compliance program.
How does this affect you?
If you are a small business operator, you may often find yourselves in a weakened bargaining position with a larger supplier or service provider. Before entering a standard form contract, you should carefully consider the terms put forward before agreeing to be bound. If a supplier is trying to enforce a term which you believe could be unfair, SWS Lawyers can provide you with advice on the operation of the B2B Laws and your ability to dispute the validity of the contract.
If you are a business who uses standard form contracts in your dealings with small businesses, you may need to review your standard form contract terms. If your terms are found to breach the B2B Laws, you will be unable to rely on any benefit or protection they confer. SWS Lawyers can provide you with advice on how to approach contract negotiations with small business operators and the enforceability of standard terms in a contractual dispute.
This article was co-written by Litigation Lawyer, Scott Homan.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.