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Thursday 24 May 2018 Maddocks has adopted an artificial intelligence (AI) platform to assist in streamlining due diligence processes. The firm has signed on to use the market-leading Luminance AI platform to provide due diligence … Continued

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ACCC launches first B2B unfair contract terms action

On 6 September 2017, the Australian Competition and Consumer Commission (ACCC) instituted proceedings in the Federal Court against one of Australia’s largest privately-owned waste management companies, JJ Richards & Sons Pty Ltd.

This case is important as it is the first Court proceeding by the ACCC under the business to business unfair contract term laws that came into effect in November 2016 (B2B Laws) and it provides an indication of the types of terms the ACCC may view as unfair under the B2B Laws.

The allegations

The ACCC alleges that JJ Richard’s standard form contracts contain eight unfair contract terms that have the following effect:

  • 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 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
  • preventing customers from terminating their contracts if they have payments outstanding and entitles JJ Richards to continue charging customers equipment rental after the termination of the contract.

The test for fairness

The B2B Laws are very similar to, and are modelled upon, the unfair contract term laws that apply regarding standard form contracts offered by businesses to consumers and extend these protections to ‘standard form contracts’, where one party is a ‘small business’. See our earlier article on the B2B Laws for an outline of the key concepts under these laws.

Under the B2B Laws, a term of a contract is unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract
  • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term (there is a rebuttable presumption against this)
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

In determining fairness, the court must take into account the extent to which the term is transparent (i.e. in plain English, legible, clear and readily available) and the contract as a whole. It is the use to which a term could be used, rather than how it has been used that is central to the determination of fairness. As such, businesses need to give careful consideration to each term of a contract and the range of circumstances in which that term may be used.

In the JJ Richard’s case, the ACCC is seeking declarations that the eight terms are unfair and consequently void, as well as injunctions to prevent JJ Richards from relying on those terms or entering into future contracts with small businesses that contain those terms.

So what does this mean for your business?

This action serves as a timely reminder that if your business has not already done so, it should be reviewing its standard form agreements for compliance with the B2B Laws. The ACCC has set up a facility for businesses to send ‘unfair terms’ to the ACCC for consideration and has publicly stated that it will be taking a proactive approach to enforcement of the B2B Laws, rather than waiting for clauses to be challenged. The risk of a term breaching the B2B Laws is that the term will be void, but the contract will continue to bind the parties if it is capable of operating without the term. The courts will not ‘rewrite’ the deal, so the parties will be held to the remainder of the contract without the benefit of the term that is deemed unfair.

On 6 September 2017, the Australian Competition and Consumer Commission (ACCC) instituted proceedings in the Federal Court against one of Australia’s largest privately-owned waste management companies, JJ Richards & Sons Pty Ltd.

This case is important as it is the first Court proceeding by the ACCC under the business to business unfair contract term laws that came into effect in November 2016 (B2B Laws) and it provides an indication of the types of terms the ACCC may view as unfair under the B2B Laws.

The allegations

The ACCC alleges that JJ Richard’s standard form contracts contain eight unfair contract terms that have the following effect:

  • 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 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
  • preventing customers from terminating their contracts if they have payments outstanding and entitles JJ Richards to continue charging customers equipment rental after the termination of the contract.

The test for fairness

The B2B Laws are very similar to, and are modelled upon, the unfair contract term laws that apply regarding standard form contracts offered by businesses to consumers and extend these protections to ‘standard form contracts’, where one party is a ‘small business’. See our earlier article on the B2B Laws for an outline of the key concepts under these laws.

Under the B2B Laws, a term of a contract is unfair if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract
  • it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term (there is a rebuttable presumption against this)
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

In determining fairness, the court must take into account the extent to which the term is transparent (i.e. in plain English, legible, clear and readily available) and the contract as a whole. It is the use to which a term could be used, rather than how it has been used that is central to the determination of fairness. As such, businesses need to give careful consideration to each term of a contract and the range of circumstances in which that term may be used.

In the JJ Richard’s case, the ACCC is seeking declarations that the eight terms are unfair and consequently void, as well as injunctions to prevent JJ Richards from relying on those terms or entering into future contracts with small businesses that contain those terms.

So what does this mean for your business?

This action serves as a timely reminder that if your business has not already done so, it should be reviewing its standard form agreements for compliance with the B2B Laws. The ACCC has set up a facility for businesses to send ‘unfair terms’ to the ACCC for consideration and has publicly stated that it will be taking a proactive approach to enforcement of the B2B Laws, rather than waiting for clauses to be challenged. The risk of a term breaching the B2B Laws is that the term will be void, but the contract will continue to bind the parties if it is capable of operating without the term. The courts will not ‘rewrite’ the deal, so the parties will be held to the remainder of the contract without the benefit of the term that is deemed unfair.