Legal Insights

Fujifilm’s near escape from million dollar penalties in unfair contract terms breach

By Shaun Temby, Eternity Lim & David Williamson

• 14 November 2022 • 5 min read

Earlier this year, the Federal Court of Australia handed down judgment in ACCC v Fujifilm Business Innovation Australia Pty Ltd in proceedings brought by the ACCC alleging 38 terms used by Fujifilm Business Innovation Australia Pty Ltd (Fujifilm), in several of its standard-form small business contracts, were ‘unfair’ and therefore unlawful.

While only one of several such decisions since the unfair contracts regime was first introduced, it takes on greater significance given the recent introduction of penalties for using such terms in standard-form contracts, commencing in late 2023. If Fujifilm were prosecuted next year for the same conduct, it could have faced maximum penalties of up to $50 million for each unfair term – a staggering theoretical penalty of $1.9 billion.

We previously outlined key aspects of the prohibition against the use of unfair contract terms in standard-form contracts (here). In short, the Australian Consumer Law and ASIC Act prohibit terms in standard-form ’take it or leave it‘ contracts that:

would result in a significant imbalance in the parties’ rights and obligations

and

are not reasonably necessary to protect the legitimate interests of the party whom the term would advantage

and

would cause detriment (either financial or otherwise) to a party if they were to be relied on

In this case, the Court found that 38 terms in eleven of Fujifilm’s standard form contracts with small businesses – entered into over a 5-year period between November 2016 and December 2021 – were ‘unfair’. Fujifilm had used the terms across a variety of their standard form contracts for a range of their products, such as software licences, support services and rental agreements. The unfair contract terms are examined in the below table.

Category of Unfair Term	Fujifilm's rights under the unfair terms
Variation, Renewal and Termination	Unilaterally vary the price charged to customers and the rights and obligations between Fujifilm and the customer. Automatically renew contracts without notice to the customer. Incorporate additional terms into the contract in extraneous documents that were not readily available to the customer and that Fujifilm could vary unilaterally without notice. Terminate the contract on notice and for cause if the customer breached any term (with no corresponding right on the customer).
Payment	Require payment by the customer of costs and expenses on a full indemnity basis that Fujifilm incurred in exercising its rights under the contract (without a corresponding right for the customer or a requirement for Fujifilm to minimise its costs). Suspend the provision of services while still requiring the customer to pay for the suspended services. Require payments to Fujifilm by the customer if Fujifilm terminated the contract, including payments for which the customer would receive nothing in return and forfeiture of pre-payments. Requiring payment by the customer irrespective of whether the goods and services.
Liability	Require the customer to warrant that they had read each document that formed part of the contract, including documents that Fujifilm might not have made available to the customer (purporting to exclude liability on the part of Fujifilm for pre-contractual representations). Impose unlimited liability on the customer while limiting Fuji’s potential liability. Requiring the customer to indemnify Fujifilm for damage caused by third parties, or accidentally or indirectly by Fujifilm. Creating a contractual regime under which the customer makes an irrevocable offer to acquire the goods and services (by signing and returning the contract documents) where Fujifilm was not bound until the contract had been accepted by it – creating a situation in which the customer would be bound to the contract for an indefinite period even where the goods and services had not been delivered.

The Court ordered Fujifilm to stop enforcing the unfair terms and restrained it from relying on similar terms in future. Under the current regime, Fujifilm was also required to publish notices on its website explaining that the terms were declared void and unenforceable, implement a compliance program for employees involved in drafting, negotiating and enforcing contracts, and pay $250,000 towards the ACCC’s costs. Significantly less than the penalties that will come into force in November 2023.

Key Takeaways

Earlier this month, the Federal Government passed the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (UCT Reform Bill), with increasing penalties in line with historical consumer law breaches (being the greater of either $50 million, three times the benefit or 10 per cent of the previous years’ annual turnover where that benefit cannot be determined). Fortunately for Fujifilm, the changes were not retrospective. Still, the case does underscore how easy it would be for a business to face significant maximum penalties simply because it hadn’t taken the time to review its standard form contracts.

Of course, while $1.9 billion would have been the theoretical maximum penalty, the reality is that the Court would likely have reduced the penalty to something far less than that amount by applying the ’totality principle‘ and the ’French Factors‘. Nonetheless, the Fujifilm decision should be a wake-up call for all businesses using standard form contracting to take the unfair contract regime seriously. Such businesses have only 12 months to review and update their standard form contracts to ensure they are more evenly balanced. Otherwise, this time next year, they may find themselves in a similar position to Fujifilm but with the added bonus of a likely penalty in the millions of dollars.