By Frazer Hunt, Partner

On 13 October 2017, the Federal Court of Australia delivered the first judgement* under the unfair contract terms provisions of the Australian Consumer Law, declaring various clauses in JJ Richards & Sons’ standard form contracts for waste management services to be unfair and void.   This was the first court case brought by the ACCC under new laws protecting small businesses from unfair contract terms which commenced on 12 November 2016. The court granted injunctions restraining JJ Richards from relying on the unfair terms and from entering into standard form small business contracts containing any of these terms.

The eight unfair terms are described below:

• Automatic renewal: This clause automatically renewed contracts unless customers terminated the contract within 30 days before the end of the term. JJ Richards was not contractually required to notify customers that their contract was about to expire and be automatically renewed.
• Price variation: This term allowed JJ Richards to unilaterally increase its prices for any reason.
• Agreed times: JJ Richards was not liable where performance of its services was prevented or hindered in any way, even where the customer was not responsible for the hindrance or where JJ Richards was better placed to manage or mitigate the risk of the hindrance. The clause only required JJ Richards to use all reasonable endeavours to perform the collection at the agreed times.
• Entitlement to charge if unable to perform the service: This clause allowed JJ Richards to charge its customers for services that it had not rendered for reasons beyond the customer’s control or potentially even for reasons within JJ Richards’ control, such as failure of its equipment.
• Exclusivity: This clause required customers to obtain all their waste management services from JJ Richards, even when the customer sought additional services to those provided by JJ Richards.
• Suspension: This clause allowed JJ Richards to suspend services if payment was not received within seven days, and to continue charging during the suspension to cover costs associated with the overdue payment.
• Unlimited indemnity: This clause created an unlimited indemnity in favour of JJ Richards, even where the loss incurred by JJ Richards was not the customer’s fault or could have been avoided or mitigated by JJ Richards.
• No termination if payments outstanding: This clause prevented customers from terminating their contracts if they had outstanding payments and entitled JJ Richards to continue charging for equipment rental after termination, despite providing no services.

The court emphasised that the unfair terms tended to exacerbate each other by interacting in a way that increased the overall imbalance between the parties and the risk of detriment to customers. For example, two of the terms arguably had the combined effect that JJ Richards could attend the customer’s premises to collect the waste outside of the agreed times, fail to collect it and still charge the customer. Another example was a scenario where a customer sought to terminate an automatically renewed contract, but had not paid for the first week’s service under the renewed contract — it was arguable that JJ Richards was entitled to leave unwanted equipment on the customer’s property and continue to charge the customer for it.

Overall, these clauses were held by the court to go beyond what was necessary to legitimately protect JJ Richards’ interests, and that these terms would cause detriment if relied upon by JJ Richards. In circumstances where all of the JJR Waste Management Contracts were standard form contracts, it followed that, insofar as the terms were contained in small business contracts, they were void under s 23(1) of the Australian Consumer Law.

The unfair contract terms provisions of the Australian Consumer Law have yet to be tested in the transport sector.  If you provide goods and services in the transport sector, you should review your standard form contracts as it is almost certain that at least some of your customers will be small businesses that are caught by this new regime. The case is a reminder to businesses to take particular care to review the terms of their standard form contracts and assess whether the terms can be justified as reasonable before imposing them on small businesses.

*ACCC v JJ Richards & Sons Pty Ltd [2017] FCA 1224.