Small businesses are protected against unfair contract terms in standard form contracts through protections which came into force on 12 November 2016 under the Australian Consumer Law (ACL). Generally speaking, standard form contracts are agreements which are offered on a ‘take it or leave it’ basis. Importantly, if one party alleges a contract is a standard form contract, the burden is on the other party to prove that it is not a standard form contract.

 

The ACL makes provisions of standard form contracts void and unenforceable if at least one party is a small business and the contract provisions are unfair. Small businesses which have the benefit of these protections under the ACL are entities which employ less than 20 employees and providing the upfront price payable under the contract does not exceed $300,000 (or does not exceed $1,000,000 if the contract duration exceeds 12 months).

 

The Australian Competition and Consumer Commission (ACCC) has recently instituted proceedings in two separate matters alleging breaches of the small business unfair contract provisions. The first action was commenced by the ACCC against JJ Richards & Sons Pty Ltd (JJ Richards), which is one of Australia’s largest privately-owned waste management companies. The second action has been taken by the ACCC against Servcorp Limited and two of its subsidiaries. Servcorp is a publicly listed company providing serviced office space and virtual office services to its customers, many of whom are small businesses.

In the proceedings commenced against JJ Richards, the ACCC has alleged that several of the terms in JJ Richards’ contracts with smaller businesses 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 Richards’ legitimate interests

• would, if relied upon by JJ Richards, cause significant financial detriment to small businesses.

 

The specific provisions of the JJ Richards contracts with small businesses that the ACCC alleges are unfair have the following effects:

• binding customers to subsequent contracts unless those customers cancel contracts within 30 days before the end of the contract term

• allowing JJ Richards to unilaterally increase its prices

• removing any liability for JJ Richards if 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 permitting JJ Richards to continue charging customers equipment rental after the termination of the contract.

The provisions in Servcorp’s contracts with its small business customers that the ACCC has alleged are unfair include terms which:

• automatically review the contract term

• permit Servcorp to unilaterally increase its prices

• permit Servcorp to unilaterally determine if the contract has been breached

• permit Servcorp to unilaterally terminate the contract and impose penalties on customers

• unreasonably impose liability on the customer or unreasonably limit Servcorp’s liability, and

• permit Servcorp to unilaterally acquire the customer’s property without notice.