Australia's first unfair contracts regime case

Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224

On 13 October 2017, the Federal Court of Australia made its first order against another party in respect of the recent amendments to the unfair contracts regime under the Australian Consumer Law. Late last year, the Australian Consumer Law was extended to apply to small businesses on and from 12 November 2016 and it was with great anticipation that small and large businesses alike have waited to see the outcomes of the first case under the unfair contracts regime.

We have previously released two articles in respect of the new unfair contracts regime and the links to those articles can be found here:

As we previously reported, the new unfair contracts regime covers contracts for supply of goods or services or for the sale or grant of an interest in land. The regime applies equally to new contracts, and to existing contracts that are extended, renewed or varied.

Background

JJ Richards & Sons Pty Ltd is a waste management solutions company, which has been in business in Australia since 1932. It has standard form contracts which are issued time and time again to other parties, including to small businesses. Since the commencement of the unfair contracts regime, JJ Richards entered into or renewed a minimum of 26,000 contracts to provide waste management services in the form of a standard form contract.

The type of standard form contract in breach of the regime was JJ Richards two page, short form Terms and Conditions service agreement. The contract comprised a front cover page which would be updated to include the parties’ details such as customer number, date of the agreement, term of the agreement, addresses for each party, where the services are located and the nature of the services. The Terms and Conditions are a one page, short, 18 clause terms and conditions which were not changed by JJ Richards for each customer, but were left fixed and attached to the front cover page.

The unfair contract terms summarised:

The Court found that eight particular areas of the JJ Richards contract were unfair contract terms:

(1)  Automatic renewal (This clause bound JJ Richards customers to an automatic renewal of the contract, unless either party cancelled the contract by written notice within a prescribed, limited time frame. The clause did not provide that JJ Richards was required to provide its clients with notice of the contract about to expire and the upcoming automatic renewal.)

(2)  Price variation (This clause gave JJ Richards the right to increase costs unilaterally without allowing a corresponding right for the customer to terminate the contract or for the customer to change the scope in scale of service provided if the customer did not agree to the price change. The right to increase costs was essentially not limited, it could cover any reason including (but not limited to) increased operation costs, changes in disposal fees, site profitability, changes to disposal facilities or increased government levies or charges.)

(3)  Agreed times (This clause provided that JJ Richards was only required to use reasonable endeavours to perform the waste collection service at the agreed times but then further provided that JJ Richards accepted no liability where [their] performance is prevented or hindered in any way. JJ Richards liability was not restricted only to situations where the customer had prevented or hindered the performance of JJ Richards. Instead, it covered any form of prevention or hindering of performance, irrespective of cause. This required JJ Richards customers to assume risks that they could not control and for which there was no corresponding benefit for assuming such risks.)

(4)  No credit without notification (Essentially, this clause provided that JJ Richards could charge customers for services that JJ Richards had not provided. The clause then put the onus on the customer to have to seek a credit request for the charges, within a limited defined timeframe of 14 days from the invoice date. The clause contained a “catch all” allowing JJ Richards to charge for any service if it was unable to perform the service for any reason. It was found this created a significant imbalance and required the customer to make a credit request even where JJ Richards had failed to provide the services for reasons within JJ Richards control.)

(5)  Exclusivity (This clause gave JJ Richards exclusive rights to remove waste from a customer’s premises for any removal of waste, recyclables, combustible liquids and dangerous goods. This was irrespective of whether or not the contract covered only one of those four types of waste removal. That is, if a customer had a contract solely for removal of recyclables, for example, that customer also granted JJ Richards exclusivity for all of the other waste services despite that those services were outside of the scope of the contract. It was noted that, among other things, this impinged on the rights of customers to enter contracts with whomever they wished.)

(6)  Credit terms (This clause provided that JJ Richards could suspend its service if a customer failed to pay. JJ Richards could also continue to charge customers the fees associated with the overdue payment during the period of suspension. That is, JJ Richards could continue billing during a service suspension. It was noted that this create an imbalance in the parties rights and obligations, particularly because the customer was not afforded the right to withhold payment if JJ Richards failed to provide services for example.)

(7)  Indemnity (This clause provided an unlimited indemnity by the customer in favour of JJ Richards in respect of all liabilities, claims, damages, actions, costs and expenses… as a result of or arising out of or otherwise in connection with the agreement… This clause covered the ability of JJ Richards to recover costs and losses even those that did not arise due to the fault of the customer. The clause did not require JJ Richards to stop, avoid or mitigate the losses. There was no corresponding indemnity offered to the client in respect of JJ Richards.)

(8)  Termination (This clause prevented customers from terminating the contract if the customer had an outstanding payment owing under the contract. The clause also entitled JJ Richards to continue charging customers for rental equipment until the outstanding payment was made (and provided JJ Richards did not need to remove the equipment (and stop the payments running) until the customer first made the outstanding payment.)

Court orders

The Court orders required JJ Richards to take a range of measures and corrective action including:

(a)  JJ Richards cannot rely on any of the unfair contract terms in any of its contracts entered into or renewed after 12 November 2016;

(b)  That JJ Richards cannot enter into any standard form contract for a period of five years if such a contract contains any of the unfair contract terms summarised above;

(c)  JJ Richards was required to publish a corrective notice on its home page, customer portal and any other URL it uses;

(d)  JJ Richards must provide a copy of the orders to each person who is a party to a standard form contract where that party is also a small business; and

(e)  JJ Richards must enter into an Australian Consumer Law Compliance Program to be undertaken by each employee of JJ Richards or any other person involved in the JJ Richards business that deals with Australian customers in relation to contracts (including small business customers of JJ Richards). The program is designed to minimise [JJ Richards] risk of future use, application or reliance on unfair contract terms in standard form contracts that are small business contracts. The program must be maintained and implemented for a period of three years.

Practical lessons learned

This case is a timely reminder that care and careful thought is required when issuing a standard form contract to a small business. Whilst standard form contracts can be useful, all standard form contracts need to be fair and balanced and in keeping with the requirements of the Australian Consumer Law. 

On the flip side, if you are a small business and you believe that you have entered into a contract that contains unfair contract terms, you may be able to take steps in relation to those unfair terms.

Further references