Small Business Contracts under review

ACCC v JJ Richards is the first successful prosecution involving unfair terms in small business contracts. It is likely to have a significant impact on commercial practices.

Snapshot:

• ACCC v JJ Richards is a landmark case, being the first case to test the 2016 amendments to the UCT laws applying to B2B transactions.
• The regulator successfully argued that the standard form contract used by JJ Richards contained unfair terms and was, therefore, void.
• The decision of the Court and the ACCC’s focus on ensuring compliance with the new law has significant ramifications for businesses and their legal advisers.

Section 24 is reviewed

Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd (JJ Richards)¹ is the ACCC’s first business to business (B2B) prosecution involving unfair contract terms in standard form contracts since the passing of the amendments to the Australian Consumer Law (ACL) in November 2016.² It is important for three reasons:

• the Court has shed light on the interpretation of the amendments
• in bringing this (and a subsequent)³ prosecution the ACCC has reaffirmed its stated aim to prioritise the unfair contract terms (UCT) regime
• the decision has sent an unmistakable message to large businesses that they must ensure that their contracts do not constitute an abuse of power.

Under s24(1) of the ACL, a term in a small business contract is unfair if it satisfies the following three criteria:

• the term must be heavily one-sided and cause a “significant imbalance” between the parties
• it must not be reasonably necessary to protect the legitimate interests of the business that would benefit from the term
• it must cause detriment (financial or otherwise) to the weaker party (ordinarily the small business).

What are unfair terms?

The Federal Court examined eight clauses in the small business contracts used by JJ Richards and declared they were “unfair” within the meaning of the ACL. The clauses under consideration:

• bound JJ Richards’ customers to further like contracts if not cancelled within 30 days of the contract’s end date
• permitted JJ Richards to increase its prices giving 30 days’ notice and without explanation
• limited the company’s liability under the contract where performance of its waste management obligations were “prevented or hindered in any way”⁶ notwithstanding the customer was not to blame
• allowed JJ Richards to charge a fee where the company attended customer premises and was unable to perform the service, even if non-performance was for reasons outside the customer’s control
• granted the company exclusivity rights of its services, preventing the customer from sourcing another waste service provider in the event that additional services were required
• enabled JJ Richards to suspend services and continue to charge customers where payment was not received within the prescribed seven day period
• provided unlimited indemnity to the company irrespective of no fault on the customer’s part
• prohibited customers terminating contracts where customers had payments outstanding and allowed JJ Richards to continue to charge for equipment rental following contractual termination.

In an article written by Ms Rebecca Neophitou in the July 2018 Law Institute Journal she examines this decision. You can read more here https://www.liv.asn.au/Staying-Informed/LIJ/LIJ/July-2018/Not-fair-game