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In Competition

ACCC demonstrates the new B2B unfair terms regime is not rubbish with first litigation

19 October 2017

It’s been just under a year since the introduction of the new business-to-business unfair contract terms law (read our article here), and the ACCC has moved swiftly from education and industry reviews to enforcing and testing the law.

The regulator commenced its first B2B unfair terms litigation in September against JJ Richards & Sons Pty Ltd (JJ Richards), one of the largest privately-owned waste management companies in the country. Victory was swift – a little over a month later, the Federal Court declared that certain of JJ Richards’ standard form small business contract terms were unfair and therefore void, and made orders by consent.

The launch of the JJ Richards proceedings was followed nine days later with court action by the ACCC against Servcorp Ltd (Servcorp), a publicly listed company which supplies serviced office spaces and virtual offices. Servcorp is defending the proceedings.

It is not only the ACCC that is testing the new unfair terms regime, with the Victorian Civil and Administrative Tribunal (VCAT) being first to find that terms were unfair in a B2B context.

This regulatory and judicial focus serves as a clear reminder to businesses that haven’t yet reviewed their standard form agreements from an unfair terms perspective, that they should do so to ensure compliance with the new regime. These recent cases provide useful guidance as to the types of clauses that the ACCC considers are unfair.

ACCC’s action against JJ Richards

The ACCC alleged that until at least April 2017, JJ Richards entered into standard form contracts with small businesses that contained terms which were unfair because they:

  • created a significant imbalance in the rights and obligations of JJ Richards and small businesses;
  • were not reasonably necessary to protect JJ Richard’s legitimate interests; and
  • would, if relied on, cause significant financial detriment to small businesses.

Specifically, the ACCC alleged that JJ Richards’ standard form small business contracts contained the following unfair terms:

  • binding customers to subsequent contracts unless they cancelled the original contract within 30 days before the end of the term;
  • allowing JJ Richards to unilaterally increase 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 for reasons that are 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; and
  • 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

(relevant terms).

The Federal Court declared the relevant terms to be unfair contract terms within the meaning of the Australian Consumer Law (ACL), and therefore void. Justice Moshinsky made orders by consent, including that JJ Richards:

  • be restrained from applying or relying on the relevant terms;
  • publish a corrective notice on the home page of its website;
  • provide a copy of the orders to each small business who is a party to a standard form contract with it; and
  • establish and implement an ACL Compliance Program for a period of three years.

These Federal Court proceedings should have come as no surprise to JJ Richards given that the business is in the waste management industry (it provides recycling, sanitary, and green waste collection services), which was one of the industries that the ACCC investigated as part of its unfair terms in small business contracts review and some of the relevant terms were identified as problematic in the ACCC’s resulting report.

The ACCC has sent a clear warning with these proceedings – “where we identify large operators, like JJ Richards, using unfair contract terms that cause harm to small businesses, we will take appropriate enforcement action”.

Servcorp next in the firing line

The ACCC’s enforcement action against Servcorp quickly followed the JJ Richards action. In this case, the regulator is alleging that the following contract terms in Servcorp’s standard Service Agreement are unfair:

  • automatic renewal of a customer’s contract and Servcorp’s right to unilaterally increase the contract price after the renewal and without prior notice;
  • permitting Servcorp to unilaterally terminate the contract and impose penalty-type consequences on the customer;
  • unreasonably limiting Servcorp’s liability or imposing unreasonable liability on the customer;
  • permitting Servcorp to unilaterally determine whether the contract has been breached; and
  • permitting Servcorp to unilaterally acquire the customer’s property without any notice.

The ACCC is seeking declarations, injunctions, corrective advertising, a compliance program and costs.

In an announcement to the ASX on 15 September 2017, Servcorp’s Company Secretary Greg Pearce said:

“SRV has been co-operating with the ACCC and has attempted to engage in a constructive dialogue with the ACCC to address their concerns…SRV maintains that its serviced office agreements are negotiable contracts and do not constitute standard form contracts regulated by the unfair contract terms regime under the Australian Consumer Law.”

VCAT already assessing B2B contract for unfairness

Notably, a few months prior to the ACCC’s enforcement action, VCAT had already been called upon to assess whether a contract for services contained unfair terms.

Bass Coast Resort Pty Ltd had arranged with Success Resources Australia Pty Ltd (Success Resources), a business that facilitates the booking of motivational speakers, for a UK based speaker to perform at a seminar in January 2017. However Success Resources subsequently notified the customer to advise that they had to “postpone the event to a later date to be confirmed in 2017”. Success Resources offered the client the same course in Sydney and a $500 goodwill rebate for the inconvenience. The customer did not accept this offer, as the dates did not suit him. Success Resources declined to give a refund on the basis that the small business customer had agreed to the terms and conditions of the purchase which allowed Success Business broad rights to make changes to booked seminars and without any form of compensation or redress. In particular, clause 3 of the terms stated that:

“We [Success Resources] may change the Speakers, the Hours, the Dates and/or the Location of the Seminar Services for any reason by notifying you in writing of the change and detailing substitute Speakers, Seminar Hours, Dates and/or Location and

(a) we shall have no liability to you; and

(b) you shall make no claim against us (including for a refund), in respect of the same.”

Deputy President Lulham took particular issue with this clause, being of the view that:

“Clause 3 exemplifies pure drafting overreach, because it purports to empower the Respondent to supply the opposite of what it contracted to supply. Any number of comedic examples would come to mind were clause 3 to have any effect.”

VCAT declared the unilateral variation clause to be an unfair term and ordered Success Resources to provide a full refund of $3995 to the customer.

Consumer unfair terms compliance is still on the radar

While we’ve seen a flurry of recent action in relation to the small business unfair terms regime, the equivalent consumer regime is still being actively enforced.

The ACCC last week accepted a court enforceable undertaking from Advanced Hair Studio Pty Ltd over concerns that the business’ standard form contracts for Advanced Laser Therapy (providing hair loss treatment):

  • between April 2015 and February 2017, included a termination clause that required consumers to pay 100% of the contract price, and
  • between February 2017 and June 2017, included a termination clause that required consumers to pay 20% of the contract price plus $150 per laser session that was unattended,

in order to be able to terminate the contract once laser therapy sessions had commenced.

Acknowledging the ACCC’s concerns, Advanced Hair has amended these termination clauses and agreed to maintain them in this form for 3 years. The business has also committed to:

  • conduct an internal audit to identify customers who entered into a laser therapy program between April 2015 and June 2017 and who contacted Advanced Hair about terminating after having commenced sessions;
  • refund these customers 80% of the contract price less $150 for each laser therapy session that the customer in fact attended (up to an including the date they contacted the business);
  • publish an advertisement on its website and at point of sale for 60 days to notify customers of eligibility for the refund; and
  • establish an Australian Consumer Law Compliance Program.

What does this mean for businesses?

While the ACCC has made explicit that it is targeting large businesses, the ACCC’s actions against JJ Richards and Servcorp should nonetheless serve as a reminder to all businesses that haven’t already to review their standard form contracts to ensure they’re compliant with the new unfair contract terms law.

Businesses should also keep in mind that it is not just the ACCC, ASIC and State/Territory regulators who may take action under the unfair terms regime – small businesses can now do so in addition to consumers. Since some Tribunals such as VCAT and the NSW Civil and Administrative Tribunal have expanded jurisdiction to deal with matters under the ACL, it’s likely that we’ll see many more actions being brought by small businesses via this informal, inexpensive and fast forum under the new unfair contract terms provisions. Indeed Victoria’s small business commissioner has been urging SMEs to contact her office if they are concerned about contracts they’ve signed, referring to the VCAT decision as showing the “fight to stamp out unjust agreements is gaining momentum”.

Although there is no doctrine of precedent at VCAT and the Federal Court made orders by consent in the JJ Richards matter, these cases still provide a valuable insight into the types of terms that the regulators consider to be unfair and the way in which dispute resolution forums approach these issues. The Servcorp case will be an important one to monitor to see whether the Court gives clear guidance as to the parameters of the regime, particularly the question of when a contract is a ‘standard form’ contract and how it should be interpreted and applied in practice.

By Stephanie Swan and Melissa Monks

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