JJ Richards falls foul of new small business protections

By: Rob McKay


Federal Court test case loss sees contract terms declared unfair and void

JJ Richards falls foul of new small business protections
JJ Richards has seen certain contracts struck out

 

A legal test of new small business legal reforms has seen JJ Richards needing to revisit its standard form contracts with small businesses.

JJ Richards is one of the nation’s largest privately-owned waste management firms and controls a significant fleet.

The Federal Court has declared, by consent, that eight terms in the standard form contract used by the major fleet owner JJ Richards & Sons to engage small businesses are unfair, and therefore void.

The outcome shows the new rules have teeth and follows a September test-case on the matter brought by Australian Competition and Consumer Commission (ACCC).

"This is the first court action by the ACCC to enforce new laws that protect small businesses from unfair contract terms," ACCC deputy chair Dr Michael Schaper says.

"Under Australian Consumer Law, terms that create a significant power imbalance between parties, are not necessary to protect legitimate interests, and which would cause significant financial detriment to a small business if relied on, are unfair and void.

"The court’s decision serves as a reminder to large businesses to review their standard form contracts and make sure they don’t include any unfair terms.

"The ACCC will not hesitate to take appropriate action to ensure large businesses are complying with the unfair contract terms provisions."

The court declared by consent that eight terms in JJ Richards’ standard form contracts with small businesses, which were entered into or renewed after November 12, 2016, were unfair and consequently void. 

These terms had the effect of:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term
  • allowing JJ Richards to unilaterally increase its prices
  • removing any liability for JJ Richards where its performance is "prevented or hindered in any way"
  • allowing JJ Richards to charge customers for services not rendered even when caused by reasons 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
  • preventing customers from terminating their contracts if they have payments outstanding and entitling JJ Richards to continue charging customers equipment rental after the termination of the contract.

"In finding that each of the terms was unfair, his Honour also found that ‘the impugned terms tend to exacerbate each other, increasing the overall imbalance between the parties and the risk of detriment to JJR customers’," the ACcC says. 

In resolving these proceedings, JJ Richards consented to orders restraining it from relying on the unfair terms in existing small business contracts and from using the terms in future contracts with small businesses.

The commpany also consented to orders that it publish a corrective notice and provide a copy of the Court’s orders to all its small business customers which are parties to an affected contract. 

"This outcome is part of a wider ACCC review of small business contracts in a range of industries, including the waste management industry," the watchdog says.

"As part of this review, the ACCC has been engaging with a range of businesses to encourage compliance with the new unfair contract term provisions."

For more information, it advises reading Businesses remove unfair contract terms before new law.

The Australian Consumer Law (ACL) allows a court to determine that a term of a standard form contract is unfair and therefore void, meaning that the contract is treated as if the term never existed, the watchdog says.

If the term is declared void, the remainder of the contract continues to bind the parties to the extent that it can operate without the unfair term.

From last November 12, the unfair contract terms provisions of the ACL were extended to cover standard form contracts involving small businesses.

Comment has been sought from JJ Richards.

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