ACCC enforcing small business unfair contract terms

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August 2018

ACCC enforcing small business unfair contract terms

A number of developments have come to light since our February update on new Australian Consumer Laws (ACL) with respect to unfair terms in business-to-business ‘standard form’ contracts (B2B contracts) (see here: http://www.teneolegal.com.au/small-business-unfair-contract-terms-one-year-on/).

Early engagement with regulators

In the Agri-business sector, AWB Harvest Finance Pools Pty Limited (AWB) were forced to amend its B2B contracts with growers after consultation with the ACCC.  AWB sought to update their B2B contracts with growers to amend clauses which allowed AWB to unilaterally increase fees charged to growers, charge growers new fees after the B2B contract had been accepted and signed by the parties, and reject grain supplied by growers on their own discretionary grounds.  No further action was taken, and the case was marked as one of the first in the agriculture sector to be resolved co-operatively with the ACCC.

Also of note was Warrnambool Cheese and Butter Factory Company Holdings Limited (WCBF).  WCBF was forced to alter its B2B contract supply agreements, along with its milk supply handbook, after the ACCC became involved.  WCBF’s contract terms allowed the company to unilaterally vary not only milk price but also milk supply terms, and disallowed farmers to terminate the milk supply agreement early without incurring a financial penalty.  The contracts also placed restrictions on farmers selling their farms, and additionally required the farmers to indemnify WCBF for any loss which could be avoided or mitigated by WCBF.  WCBF agreed to make the alterations and acted quickly to do so, also writing to farmers who operated under their contracts to advise them of the changes made.

Wisdom Properties Group Pty Limited (Wisdom) provided an enforceable undertaking to the ACCC that it would remove contract terms contained in its home building agreements, relating to non-disparagement by its customers.  Under the contracts, customers were prevented from publishing statements online about Wisdom’s services, such as online reviews.  The terms allowed Wisdom to suspend a customer’s home construction and held customers liable for any losses incurred as a result of those public statements.  In particular, Wisdom relied on the unfair terms to block or have removed reviews posted by customers on the online review website, ProductReview.com.au.  The ACCC found this to be unfair in the current climate, where consumers are “increasingly relying on online reviews when making purchase decisions” and it would be unfair for businesses to “prevent consumers from seeing genuine, relevant and lawful reviews.”  As part of its undertaking, Wisdom was to publish a corrective notice on its website, contact affected customers (of which, there were around 3,000), and establish their own compliance program.

These case studies demonstrate that it would be prudent to voluntarily engage with the ACCC after a review of your own B2B contracts, if you believe any terms could be considered as being unfair.  Being upfront and making acknowledgements to the ACCC about terms which may be found to be unfair, as well as having a plan to address those concerns, will likely mitigate substantial losses and lead to a more commercially justifiable outcome, avoiding the need for court action.

Court action

Whilst some businesses have been able to avoid being involved in Court action instigated by the ACCC, one company has not fared so well.

In September 2017, despite co-operation and attempts to engage in discussion, the ACCC commenced its second court action against Servcorp Limited, a large publicly listed company supplying serviced office space, virtual office space and office support services to its customers, many of whom are small Australian businesses.  Also included in the action were two of Servcorp’s subsidiaries, Servcorp Parramatta Pty Limited and Servcorp Melbourne 18 Pty Limited.

The contract terms the ACCC alleged were unfair included terms that:

  • automatically renewed a customer’s contract, unless the customer had opted out, and allowed Servcorp to then unilaterally increase the contract price after such renewal, without prior notice to the customer. In one case, a small business tenant at a Servcorp office paid $2,900.00 in rent per month, and after the end of 12 months it’s contract was automatically renewed, with the rental increased to $4,800.00 per month.
  • permitted Servcorp to unilaterally terminate a contract and impose a termination fee or ‘penalty’ on the customer.
  • unreasonably limited Servcorp’s liability or which imposed unreasonable liability on the customer.
  • permitted Servcorp to unilaterally determine whether the contract had been breached.
  • permitted Servcorp to unilaterally acquire the customer’s property (the customer’s security deposit) without any notice, if the customer failed to request its return.

Servcorp argued that its serviced office agreements were negotiable contracts and did not constitute B2B standard form contracts regulated by the ACL.  In an announcement to the Australian Securities Exchange after proceedings were commenced, Servcorp’s company secretary, Greg Pearce, stated “In its 39 years of existence, Servcorp’s agreements with its clients have never been challenged by any government authority as to their fairness or legitimacy.

In July 2018, the Federal Court declared by consent that 12 of the terms of Servcorp’s B2B contracts used by its two subsidiaries, were unfair under the ACL, and were therefore void.  This was on the basis that each of the 12 terms caused, amongst other things, a significant imbalance in the parties’ rights and obligations, and detriment (financial or otherwise) to the small businesses entering into such B2B contracts, if they were applied or relied upon by Servcorp.

Whilst the ACL does not allow for penalties to be applied to a company for contract terms found to be unfair by a Court, Servcorp were ordered to pay the ACCCs costs of the proceedings up to an amount of $150,000.00, as well as establishing it’s own unfair contract terms compliance program, the terms and content of which were to be agreed between Servcorp and the ACCC, or as ordered by the Court (with a requirement that Servcorp must procure its employees and agents to participate in the program).

This case highlights that the ACCC are fully prepared to investigate and pursue companies they believe are not complying with the new unfair contract term provisions of the ACL.  It also demonstrates that despite a company believing their contracts are not considered to be B2B contracts and therefore fall outside the provisions of the ACL, an authority may, after examination, disagree, leading to serious consequences for the business.

Either way, if you have even the slightest concerns about the terms of your contracts, or a contract you are intending to or have entered into, we are happy to provide an opinion as to whether the terms of such contract could be considered unfair.  For more information, do not hesitate to contact us today.

Craig Higginbotham and Lynette Prichard

16 August 2018

By | 2018-08-16T12:02:56+00:00 August 16th, 2018|Business, Consumer Law, Contract Law|Comments Off on ACCC enforcing small business unfair contract terms