Unfair contract terms under examination in recent JJ Richards & Sons case

In a recent consent decision handed down by the Federal Court, eight terms in a JJ Richards & Sons Pty Ltd small business standard form contract were declared unfair and void.

JJ Richards has agreed not to rely on these unfair provisions and to refrain from using these terms in future small business standard form contracts. This is the first decision to examine the application of the unfair contract terms regime to small business contracts, and highlights the risk of not reviewing these contracts for compliance with the Competition and Consumer Act 2010 (Cth).

This case provides businesses with clear guidance as to what terms the Court will consider unfair. The following terms of the JJ Richards’ contracts were found to be unfair and void:

• binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
• allowing JJ Richards to unilaterally increase its 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 even when caused by reasons 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.

The Court noted that these clauses had the effect of exacerbating each other, ‘increasing the overall imbalance between the parties and the risk of detriment to JJ Richards’ customers’.

The terms set out above are commonly found in standard form contracts to protect a business’s interests. However, it is vital that such protection mechanisms are legitimately required to protect the interests of the business and don’t create a significant power imbalance between the parties.

The consequences of terms of contracts being found void is likely to be the significant reduction of the effectiveness of these contracts and the protection consequently afforded to the business by them. This is not a position that businesses would wish to find themselves in, and is a risk that businesses may face if they have not ensured that their terms are in accordance with current law.

This is a timely reminder to businesses to review their contracts. In doing so, you will be able to ensure that their legitimate interests are adequately protected, and mitigate the risk of losing control over important indemnity, termination and pricing provisions.

The ACCC is actively looking and investigating similar cases, as compliance with the unfair contract terms regime is one of its priorities this year. Standard form small business contracts should be reviewed, assessed and potentially amended to ensure your business interests are adequately protected within the confines of the law.