The ACCC has commenced a proceeding against a waste management company alleging that its standard form contract contains unfair terms and conditions. It is the first such proceeding by the ACCC under the small business unfair contract laws that commenced in November 2016. It is a sharp warning to businesses to review their standard form contracts.
The ACCC has alleged that the company's terms and conditions were unfair because they:
- created a significant imbalance in the rights and obligations of the parties
- were not reasonably necessary to protect the legitimate interests of the company
- would, if relied on, cause significant detriment to the small business.
The terms that will be reviewed by the Court include:
- an unlimited indemnity in favour of the service provider
- a qualified limitation of liability clause
- an exclusivity clause
- a unilateral right to increase fees
- a clause that provided for automatic contract renewal unless terminated by the customer 30 days prior to the end of the term.
In its press release the ACCC was not subtle. It bluntly said that court proceeding should be a reminder to large businesses to review their contracts to ensure compliance. Our view is that in almost all cases, one sided standard form contracts can be made 'fair' without compromising the position of the large business. Many unfair terms result from drafting overreach that results in a position that does not reflect how the services provider conducts their business.
For instance, many indemnity clauses place full liability on the customer for loss suffered by the services provider, even where that loss resulted from the service provider's negligence. The reality is that few service providers will look to recover the costs of their own negligence from their customers.
The unfair contracts legislation and the ACCC's recent Court proceeding should be seen as a reminder to companies to review the template terms and conditions, with the following questions asked:
- is there a legal or commercial reason for each of the terms?
- do these terms reflect the agreement I have reached with my client?
- are any of these terms void under the unfair contracts legislation?
- is there a risk that a necessary term will be deemed void because it goes further than what is needed to protect the company's interest – if so, can it be amended to cover only the genuine risk?
It is clear that terms and conditions drafted before the B2B Unfair Contract legislation commenced may now be ineffective. Under the new regime, using overly one sided terms and conditions may result in entire clauses being void. Once the void clauses are removed, the 'one-sided' terms and conditions may end up being one sided in favour of the customer.
It is usually better to redraft terms and conditions and have a relatively balanced set that:
- are more certain of being enforceable
- will not provide customers with 'unfair terms' defences which could be an obstacle to efficient debt collection.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.