Opinion: Fair laid bare

By: Maurice Baroni and Nick Leon


The new ‘small business’ contractual dilemma hits home

Opinion: Fair laid bare
Maurice Baroni says the case serves as a warning to all transport operators.

 

On November 12, 2016, the unfair contract term provisions in the Australian Consumer Law (ACL) were extended to cover terms of standard form involving small businesses.

Owner-drivers fall precisely in that category of ‘small businesses’.

The Australian Competition and Consumer Commission (ACCC) has recently commenced proceedings taken in the Federal Court against large privately owned waste-management firm JJ Richard & Sons Pty Ltd (JJ Richards).

This is the first of its kind and, in our view, many more will follow.

It serves as a warning to all transport operators to review the consumer contracts they have with small businesses.

The JJ Richards Case          

The ACCC has alleged that until earlier this year, JJ Richards entered into standard form contracts with a number of small businesses which contained terms that the ACCC alleged are unfair.  

Without going to the detail of the unfair contracts laws, generally a term of a contract with a small business will be "unfair" if it:

  • causes a significance imbalance in the parties’ rights and obligations under the contract; and
  • is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Such a term may be declared void and unenforceable.

While the first court action in this space, JJ Richards is not the only company to have been or is being investigated by the ACCC.

Uber, Fairfax and Lend Lease Property Management are also being investigated.

The allegation

The ACCC alleges JJ Richards’ contracts with its customers contain eight unfair contract terms: 

  1. binding customers to commit to subsequent contracts unless they cancel the contract within 30 days before the end of the term
  2. allowing JJ Richards to unilaterally increase its prices
  3. removing any liability for JJ Richards where its performance is "prevented or hindered in any way"
  4. allowing JJ Richards to charge customers for services not rendered for reasons that are beyond the customer’s control
  5. granting JJ Richards exclusive rights to remove waste from a customer’s premises
  6. allowing JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days
  7. creating an unlimited indemnity in favour of JJ Richards
  8. 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 ACCC is seeking declarations from the Court that the terms are unfair and thus void.

It is also seeking injunctions to prevent JJ Richards from relying on those terms with existing customers and from entering into future contracts with small businesses that contain those terms. 

Lessons

The case is a reminder to businesses to take particular care to review the terms of their contracts with small businesses and assess whether the terms can be justified as reasonable beforeimposing them. 

Determining whether some terms are unfair or can be complex, with a number of terms likely to fall within a grey area.

Any term would need to be considered in the context of the contract as a whole, industry practices and whether the interest being protected can be protected through an alternative (and fairer) approach.

The ACCC's guidance on unfair contract terms has identified common, which include: 

  • unilateral variation of rights 
  • lack of reciprocity
  • automatic renewal
  • wide indemnities 
  • liquidated damages. 

While it will be the Courts that ultimately determine whether a term is unfair under the ACL, the ACCC's guidance will help to serve as a useful safety check for all transport operators when preparing new contracts for small businesses.

Of course the same principles will apply to review existing contracts.

Ultimately, if a legitimate interest can be protected without "skewing" the contract, then this may be preferable to risking the entire clause being rendered void and unenforceable.

Maurice Baroni is a barrister at Denman Chambers.
Nick Leon is an associate at McCabe Lawyers
T: 02 9264 5541
E: m.baroni@denmanchambers.com.au

This article was first published in the November edition of ATN magazine. For more such content, subscribe to the magazine now.

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