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Business and Corporate Law, Contracts

Precedent Set for New Unfair Contract Term Protection in favour of Small Businesses

On 12 November 2016 new amendments to the Australian Consumer Law (ACL) in respect of unfair contract terms will come into force. These amendments significantly expanded the scope of protection against unfair contract terms under the ACL.

Beforehand, protection against unfair contract terms under the ACL was only afforded to consumer contracts, which were defined as contracts where an individual acquired goods or services predominantly for personal, domestic or household use or consumption.

The new amendments have now extended the protection to small business contracts. So, what does that mean for your business? And have these laws been tested?

Recently, in a landmark case testing the new laws in ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224 the Court declared by consent that eight terms in JJ Richards’ standard form contracts with small businesses, which were entered into or renewed after 12 November 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.”

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.

So, what does all the above legal jargon really mean? If you’re dealing with small businesses which have 20 employees or less, and the values of those contracts are under $300,000.00 be wary of their newly founded additional rights against unfair terms.

Unfair terms, according to the newly set precedent means any clause that:

  • requires one party to bear all the risk of a high cost, low probability event;
  • creates an automatic rollover of the contract;
  • allows one party to unilaterally change and vary the contract;
  • affect or remove the ability of the other party to vary the terms, limit their obligations, terminate or renew the contract;
  • levy excessive fees;
  • impose excessive interest rates on outstanding monies; and
  • affect or limit a party’s avenues of redress.

If you feel as though your current Terms and Conditions sound like or may fulfil the above unfair terms please contact us immediately at Priority Business Lawyers for a thorough review of your trading documents in order to ensure compliance.

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