David Ohri

ACCC action against JJ Richards – a reminder for businesses to review standard form contracts for unfair terms

David Ohri

25 October 2017

Competition and Consumer Law

In the recent case of Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd1Moshinsky J declared that a number of terms in JJ Richards’ standard form contracts with small business customers were unfair and void under the Australian Consumer Law.

The proceeding was the first court action by the ACCC to enforce new laws that protect small businesses from unfair contract terms. The decision of Moshinsky J stands as a reminder to businesses that use standard form contracts that, if they have not already done so, they need to review their standard form contracts and revise any unfair terms. When considering the content of their standard form contracts, it is particularly important for businesses to be cognisant of the fact that the unfair contracts terms regime in the Australian Consumer Law applies to standard form contracts entered into not just with consumers but also with small business customers.2

This blog post:

  • considers the background to the ACCC’s case against JJ Richards;
  • identifies the terms in JJ Richards’ standard form contracts that were found to be unfair and declared to be void; and
  • identifies the potential consequences of including unfair terms in standard form small business contracts.

Background to the ACCC’s case against JJ Richards

JJ Richards provides waste management services. JJ Richards’ customers include small businesses customers. JJ Richards provides its services under a standard form contract.

On 12 November 2016, the unfair contract terms protections in the Australian Consumer Law were extended to small businesses customers. In the lead up to the unfair contract terms protections being extended to small business customers, the ACCC published a report in which it identified a number of common terms used in standard form contracts in a number of industries (including the waste management industry) which the ACCC  was concerned might be unfair contract terms under the Australian Consumer Law. The ACCC’s report discussed ways to avoid including unfair terms in standard form contracts.

In December 2016, the ACCC wrote to JJ Richards to draw its attention to the ACCC’s report and inform JJ Richards that the ACCC was investigating whether terms in contracts being offered by providers of waste management services gave rise to concerns under the Australian Consumer Law. The ACCC also requested copies of JJ Richard’s relevant standard form contracts. No contracts were provided to the ACCC until April 2017. On review of the contracts provided by JJ Richards, the ACCC formed the view that JJ Richards’ standard form contracts contained a number of contract terms that were likely to be unfair under the Australian Consumer Law. The ACCC also formed the view that, despite being aware that the unfair contracts terms protections had been extended to small businesses and the ACCC was investigating whether JJ Richards’ standard form contracts contained unfair contract terms, JJ Richards had not addressed the ACCC’s concerns. This led to the ACCC issuing proceedings against JJ Richards. Thomson Geer acted for the ACCC.

The terms that were found to be unfair and declared void

JJ Richards’ standard form contracts contained 18 terms. Of those 18 terms, eight were found to be unfair and declared void. The eight terms declared void were:

  • Clause 1 Automatic Renewal – this clause had the effect of binding customers to subsequent contracts unless they cancelled the contract within 30 days before the end of the term.
  • Clause 4 Price Variation – this clause had the effect of allowing JJ Richards to unilaterally increase its prices.
  • Clause 6 Agreed Terms – this clause had the effect of removing any liability for JJ Richards where its performance was prevented or hindered ‘in any way’.
  • Clause 7 No Credit without notification – this clause had the effect of allowing JJ Richards to charge customers for services not rendered.
  • Clause 9(i) Exclusivity – this clause had the effect of giving JJ Richards exclusive rights to remove waste from a customer’s premises.
  • Clause 16 Credit Terms – this clause had the effect of allowing JJ Richards to suspend its service but continue to charge the customer if payment had not been made after seven days.
  • Clause 17 Indemnity – this clause had the effect of creating an unlimited indemnity in favour of JJ Richards.
  • Clause 18 Termination – this clause had the effect of 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.

Potential consequences of including unfair contract terms in standard form small business contracts

The most immediate and obvious consequence is that the terms are void and cannot be relied upon.  However, the ACCC also sought, and was granted by consent, the following remedies against JJ Richards:

  • restraints against JJ Richards from relying on any of the unfair contract terms or including them in any future contracts;
  • the publication of a corrective notice;
  • a requirement for JJ Richards to provide a copy of the Court’s orders to every relevant small business customer; and
  • a requirement to establish and implement an Australian Consumer Law compliance program.

This was the first time that remedies of this nature were granted in respect of unfair contract terms in standard form small business contracts and it sends a clear message to businesses that the ACCC will not merely seek to have unfair contract terms declared void but will also seek additional remedial measures in cases where it believes action is justified.  In making the orders sought by the ACCC, Moshinsky J stated:3

In the circumstances, it is in the public interest for the proposed declarations and orders to be made. A significant legal controversy is being resolved.  The declarations are appropriate because they serve to record the Court’s disapproval of the conduct, vindicate the ACCC’s claim that the relevant contractual terms are void, assist the ACCC in carrying out its regulatory duties in the future, inform the public of the relevant conduct, and deter other companies from entering into relevant contracts with such terms.

——————-

References: 

1 [2017] FCA 1224.

2 A small business for the purposes of the unfair contract terms regime in the Australian Consumer Law is a business that employs fewer than 20 people.

3 [2017] FCA 1224, at [10].