On 12 August 2022, the Federal Court ordered Fujifilm Business Innovation Australia and Fujifilm Leasing Australia (together, Fujifilm) to refrain from enforcing and using 38 contract terms deemed ‘unfair’ in their standard form contracts (SFC) with thousands of small businesses.
Pursuant to requirements under the Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA)), Fujifilm is required to ensure its SFC complied with protections against ‘unfair’ contract terms. Generally, a term in a SFC is ‘unfair’ if the provision:
- would cause significant imbalance in parties’ rights and obligations;
- is not reasonably necessary to protect legitimate interests of the party advantaged by the term; and
- would cause financial or non-financial detriment to a party if the term is applied or relied on.
Under the current provisions of the CCA, if a term of a SFC is found to be ‘unfair’, it is thereby void and parties are released from the binding obligation arising from the contract term in dispute. Where possible, the remainder of the contract continues to bind parties so long as the agreement is operable without the unfair term.
Stewart J declared the following categories of SFC terms ‘unfair’ and unenforceable:
- Automatic renewal terms – permitting Fujifilm to renew contracts for a further period unless the customer cancels the contract before the contract term ends;
- Disproportionate termination terms – allowing Fujifilm to terminate the contract pursuant to a wide range of circumstances not available to the customer;
- Liability limitation terms – limiting Fujifilm’s liability and/or requiring the customer to indemnify Fujifilm without reciprocal rights for the customer;
- Termination payment terms – requiring customers to pay exorbitant exit fees where the contract is terminated, including other charges set by Fujifilm;
- Unfair payment terms – requiring customers to pay Fujifilm for licensed software regardless of whether Fujifilm has delivered the software, and requiring payment for goods prior to delivery;
- Unilateral variation terms – allowing Fujifilm to unilaterally vary terms of the contract, including charges and terms contained in other documents.
As a consequence of breach, Stewart J ordered Fujifilm to:
- refrain from applying, or relying on, any unfair term contained in their SFCs;
- publish a Corrective Notice and notify customers of affected contracts;
- implement an unfair contract compliance program; and
- pay a $250,000 contribution to ACCC costs for proceedings.
The parties having reached a mediated settlement, agreed the terms of draft orders and made joint submissions, meant that Stewart J did not go through the nearly 300 individual clauses that were impugned. Nevertheless, the Fujifilm judgment cautions of the serious and costly risks arising from corporate complacency towards unfair contract terms, which may soon be exacerbated as the Australian Government announces their intention to amend the CCA to allow the ACCC to seek civil penalties for a party’s use, and reliance on, an unfair SFC terms.
Proposed Unfair Contract Term Reform
Whilst 2010 and 2016 reforms sought to protect consumers and small businesses from material power imbalances arising from terms which were unnecessary to protecting the legitimate interests of parties, the Treasury review into Unfair Contract Term Protection found that enhancements could be made to the current regulation to deter the use of unfair terms in SFC and potential exploitation of parties’ power imbalances.
To address this, the newly elected Australian Government has announced their commitment to introducing time-sensitive reform to strengthen unfair term prohibitions within forthcoming parliamentary sitting periods. Whilst particulars of their reforms are yet to be revealed (stay tuned!), draft legislation that was released for consultation in 2021 had proposed to:
- make unfair contract terms unlawful;
- give courts the power to impose civil penalties for use and reliance on unfair terms in standard form contracts, as well as the power to determine an appropriate remedy (rather than the term being automatically void);
- expand protections to a larger number of small business contracts by widening business eligibility thresholds (from less than 20 employees to less than 100 employees);
- remove the monetary ceiling for upfront price payable.
Prospective Implications
Proponents for strengthening protections posit that reform will enhance, rather than replace, the current regulatory regime to substantively:
- deter breach of consumer protections, in light of the potential civil penalties imposed if a party is found to be in breach of the unfair contract terms provisions;
- bolster consumer confidence in proactive regulatory enforcement; and
- improve outcomes for prospective victims of unfair contractual practices.
Indeed, the introduction of civil penalty deterrence, akin to those imposed for anti-competitive and unconscionable conduct, expose businesses to financial risk where impermissible contract terms are proposed, used or relied on.
Takeaways
The Fujifilm decision and impending debate of the government’s proposals for reform provide a timely reminder for businesses to continue their monitoring for, and review of, contractual terms which may be deemed ‘unfair.’
With escalated ACCC enforcement efforts and potential penalties in play, consider this fair warning!
Image credit: Contract Law by US Army / Public Domain / Wikimedia Commons / Resized
