ACCC not putting up with any rubbish in small business contracts

The Australian Competition & Consumer Commission (ACCC) has taken court action against JJ Richards & Sons Pty Ltd (JJ Richards), a major Australian waste collection business, alleging that a number of clauses in its standard form waste collection contracts with small businesses are unfair. This is the first time the consumer watchdog has taken action to enforce the new unfair contract terms provisions in the Australian Consumer Law (ACL) for a small business contract, since the law was extended to protect small businesses on 12 November 2016.

What happened?

On 6 September 2017, the ACCC initiated proceedings in the Federal Court against JJ Richards, one of Australia’s largest privately owned waste management companies. It alleges that eight clauses in JJ Richards’ standard form commercial waste collection contract are ‘unfair’ under the ACL and therefore void when contracting with small businesses. The clauses in question:

• bind customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term
• allow JJ Richards to unilaterally increase its prices
• exclude JJ Richards’ liability where its performance is “prevented or hindered in any way”
• allow JJ Richards to charge customers for services not rendered for reasons outside the customer’s control
• grant JJ Richards exclusive rights to remove waste from a customer’s premises
• allow JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days
• create an unlimited indemnity in favour of JJ Richards, and
• prevent customers from terminating their contracts if they have payments outstanding and entitle JJ Richards to continue charging customers equipment rental after the termination of the contract.

The ACCC is seeking a declaration that the terms are unfair and therefore void, as well as an injunction to prevent JJ Richards from relying on such terms in small business contracts in the future. If the relevant contracts are capable of operating without the unfair terms, they will remain on foot and bind the parties.

Why is this important?

The ACCC Deputy Chair Dr Michael Schaper believes that this should be a reminder to large businesses to review their standard form contracts to ensure the terms are not unfair to small businesses. If a court finds key terms of your standard form contracts to be unfair, they will not be binding, which may leave your business open to significant risk. For example, if a liability or indemnity is struck down, you may be left without any limitation of liability or indemnity against your losses.

Many of the clauses the ACCC alleges are unfair are the kinds of clauses the ACCC has flagged it considers are likely to be unfair. However, it is interesting that the ACCC has also alleged that an exclusivity clause is unfair. Normally, exclusivity clauses would be attacked as anti-competitive under the competition law, but only if they substantially lessen competition in the overall market. Here, the ACCC is saying that even if they are not anti-competitive, it thinks they may still be unfair. If successful on this point, this will be a further major restriction on the kinds of clauses that can be imposed on consumers and small businesses.

A term will be considered unfair if it:

• would cause significant imbalance in the rights and obligations of the parties
• is not reasonably necessary to protect the legitimate interests of the business advantaged by the term, and
• would cause detriment to a party if applied or relied upon.

The ACCC has released a Report which identifies terms that are likely to be considered unfair across a range of industries, and provides guidance for how businesses can minimum risks of infringing the unfair contract terms regime.

If you have any questions about these proceedings or how to ensure your business is compliant with the unfair contract terms regime please contact Paul McLachlan, Alex Hutchens or Belinda Breakspear. We have been assisting a number of our clients to review and rewrite their standard form consumer and small business contracts to remove unfair terms.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.