Last October the Federal Court of Australia handed down their decision in the matter of Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd. The case centered on JJ Richards standard form contracts, with the ACCC alleging the contracts contained unfair terms.

It followed a series of amendments to Australian Consumer Law, implemented in late 2016, which extended the ACL’s scope to protect small businesses from unfair terms in business-to-business standard form contracts.

Following the amendments, the ACCC notified JJ Richards that there appeared to be a number of unfair terms within its standard form contracts. However the company failed to address these concerns and so the ACCC commenced proceedings.

The amended legislation stipulates that a contract will be ‘unfair’ where it is one sided or excessive, creates a ‘significant imbalance’ between the parties and where its provisions are not reasonably necessary to protect the benefiting party’s legitimate interest. Moreover, it deems that a small business contract exists where, at the time of assent;

  • the relevant business employs fewer than 20 people; and
  • the upfront price payable under the contract is no more than $300 000 or $1million if the contract is for more than 12 months

At trial, JJ Richards was found to have included a total of 8 unfair clauses within its standard form small business contracts. The decision rendered all illegitimate clauses void and thus JJ Richards was unable able to rely on any provisions;

  • allowing JJ Richards to unilaterally increase its prices;
  • binding customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term;
  • 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;
  • preventing customers from terminating their contracts if they have payments outstanding and allowing JJ Richards to continue charging customers equipment rental after the termination of the contract.

Ultimately, the decision serves as a timely reminder to large businesses of the need to review small business standard form contracts. It upholds the Australia’s commitment to protecting small businesses and highlights the importance of revising clauses that may otherwise be rendered void and unenforceable if challenged as unfair pursuant to the ACL.

The ACCC has since published a report addressing common terms of concern in small business contracts. It offers guidance on how best to manage contracts in light of the amendments and outlines a number of strategies implemented by other other companies across a broad range of industries.