Is the Contract you Agreed to Unfair? We can help!

Tuesday March 27, 2018

Is the Contract you Agreed to Unfair? We can help!

“The only thing that makes life unfair is the delusion that it should be fair.” Unknown

Fortunately, the Australian Competition and Consumer Commission (ACCC) does not subscribe to that quote and it has been a little over a year since the new unfair contract terms regime came into effect. Unfortunately though, there has only been scant media coverage of the new regime, if at all, which now applies to business to business contracts where one of the parties is a small business.

The new regime is designed to put large and small organisations on the same playing field when negotiating contracts. In the past large organisations were able to dictate their terms to a small business entering into an agreement on a ‘take it or leave it’ basis. The new regime has changed the, ‘take it or leave it’ proposition completely.

If a small business is provided with a standard form contract from a large organisation and there are terms in the contract which are deemed, ‘unfair’ then those terms deemed unfair will be struck from the contract even if the contract has been signed by both parties and is currently on foot.

What is an unfair term?

  • a term that enables one party (but not another) to avoid or limit their obligations under the contract
  • a term that enables one party (but not another) to terminate the contract
  • a term that penalises one party (but not another) for breaching or terminating the contract
  • a term that enables one party (but not another) to vary the terms of the contract

What contracts does the regime cover?

  • if the contract is for the supply of goods or services or the sale or grant of an interest in land
  • if at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis)
  • if the upfront price payable under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months

    If a contract is varied on or after 12 November 2016, the law applies to the varied terms.

The unfair contracts regime is a powerful tool for small business and has far reaching implications for large organisations.

JJ Richards & Sons Pty Ltd (JJ Richards) Case

At the end of last year the Federal Court declared that eight terms in the standard form contract used by JJ Richards to engage small businesses were unfair, and therefore void, following ACCC action. As a consequence JJ Richards had to contact approximately 2,300 customers and advise them that the eight terms in their contracts were not enforceable.

Some of the terms deemed unfair were:

  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term, for example: automatic renewal
  • allowing JJ Richards to unilaterally increase its prices
  • removing any liability for JJ Richards where its performance is “prevented or hindered in any way”
  • 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

If you would like us to review or draft your contracts to ensure that they don’t fall foul of the legislation or assist in negotiating a contract please do not hesitate to contact us.