ACCC tests small business protections in new unfair contracts regime

  • In September the ACCC commenced its first enforcement proceeding concerning the business to business unfair contract laws.
  • The ACCC has identified some specific sectors whose existing standard form contracts are of particular concern.
  • Businesses that use standard form contracts should take steps to ensure that they are compliant with the unfair contract provisions in the ACL.

Signing document

Amendments to the unfair contracts regime have been brought into fresh focus, with the ACCC commencing its first two enforcement actions under the amended legislation.

Changes to the Australian Consumer Law, which came into effect on 12 November 2016, extended unfair contract term protections to ‘small business contracts’. As a consequence, protections from unfair contract terms in standard form contracts which were once reserved for consumers are now afforded to small businesses.

The amended regime covers standard form contracts in a business to business context where one of the businesses employs less than 20 people and the up-front price payable is up to $300,000 or, if the contract runs for more than a year, up to $1 million.

The laws apply to standard form small business contracts entered into or renewed on or after 12 November 2016. Under the unfair contract laws, terms that are found to be unfair are void. Two business to business enforcement actions have commenced under the new regime.

Federal Court action concerning alleged unfair terms in waste management contracts

On 6 September 2017, the ACCC commenced its first enforcement proceeding concerning the business to business unfair contract laws. The Federal Court proceeding is against JJ Richards & Sons Pty Ltd, a waste management company. The ACCC alleges that terms in JJ Richards’ standard form contract with small businesses are unfair and should be declared void because they go beyond what is reasonably necessary to protect JJ Richards’ legitimate interests. 

The terms that the ACCC alleges are unfair include terms which:

  • provide that the contract term automatically renews unless the small business terminates within the last 30 days of the existing term
  • allow JJ Richards to unilaterally increase its prices during the contract term;
  • remove any liability for JJ Richards for breach if it fails to provide its services within agreed times
  • provide that the small business must apply for credit where JJ Richards fails to provide services
  • grant JJ Richards exclusive rights preventing small businesses from obtaining waste management services from a third party during the contract term, even if JJ Richards fails to provide the services
  • require the small business to pay accounts within 7 days, failing which JJ Richards may suspend the services but continue to charge fees
  • require the small business to grant an unlimited indemnity for loss in favour of JJ Richards even if the small business did not cause the loss
  • prevent the small business from terminating if monies are owed to JJ Richards, and entitles JJ Richards to continue charging for equipment rental after termination even though services are no longer being provided.

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