In further evidence that ‘fairness in contracting’ is emerging as the central principle underpinning commercial behaviour in Australia, the Federal Court in ACCC v JJ Richards & Sons Pt Ltd (JJ Richards)  has recently sent a crystal-clear message to corporations: clean up your ‘small business’ contracts or run the risk that they will be unenforceable. JJ Richards is one of Australia’s largest waste management companies. It routinely entered into standard form (or boilerplate) contracts with small businesses to manage their rubbish and waste removal but, after several complaints from its customers about its contracts, the ACCC (the regulator with responsibility for administering the relevant law) prosecuted it in the Federal Court. It alleged JJ Richards breached the Unfair Contract Terms (UCT) provisions of the Australian Consumer Law (ACL). Before we examine the case, some background.
What is the law?
Under the UCT, a term in a ‘standard form contract’ to which a ‘small business’ is a signatory, will contravene the law if the term is ‘unfair’.
What is a ‘small business’?
A ‘small business’ is defined as an entity which employs less than twenty people and where the upfront price payable under the contract is no more than $300,000 or $1 million if the contract exceeds 12 months duration.
What is a ‘standard form contract’?
A standard form contract is not defined but is commonly understood to be one that is provided on a ‘take-it-or-leave-it’ basis and not subject to any meaningful negotiation.
When is a Small Business Contract term ‘unfair’?
A term in a small business contract is considered ‘unfair’ if three requirements are met:
1. It causes a significant imbalance in the parties’ rights and obligations arising under the contract
2. It is not reasonably necessary to protect the legitimate interests of the business
3. It would cause detriment (financial or otherwise) to the small business 
Additionally, in determining whether a term of a small business contract is ‘unfair’ the court will consider the degree to which the term is transparent.  This will involve the court taking into account whether the term is drafted in plain language and whether it is legible, presented clearly and readily available to the small business affected by the term. 
The Consequences of an Unfair Contract?
The consequences are serious: although no fines or penalties are incurred, a term that is ‘unfair’ is unenforceable  and, if the rest of the contract does not make sense without the unfair term, the contract itself is unenforceable. And because the offending term may be found in hundreds of contracts, the corporation may suffer significant economic and reputational damage.
What happened in ACCC v JJ Richards?
In JJ Richards it was clear that it had entered into many ‘standard form’ ‘small business’ contracts as defined in the legislation. The central question was whether several terms used in those contracts were ‘unfair’.
The terms under review related to:
- Automatic renewal: permitting JJ Richards to automatically renew client contracts unless cancelled 30 days prior to the contract’s termination
- Price variation: allowing JJ Richards to unilaterally increase its prices for any reason
- Agreed terms: limiting JJ Richards contractual liability where the performance of the company’s obligations was ‘prevented or hindered in any way’
- No credit without notification: enabling JJ Richards to charge customers a fee for non-performance of the contract even where the failure to render services was not the fault of the client
- Exclusivity: providing JJ Richards with the exclusive right to remove waste from their clients’ premises thereby deterring their clients from seeking another provider
- Credit terms: permitting JJ Richards to suspend services and continue to charge customers if payment for the service was not made after seven days
- Indemnity: affording unlimited indemnity to JJ Richards for any claims incurred related to any client contracts
- Termination: prohibiting JJ Richards’ customers terminating their contract with the company where money was owing and allowing the company to continue to charge rental fees following termination of the contract.
What was the Court’s decision?
The Federal Court held that each of the terms in JJ Richards’ contracts was ‘unfair’ and explained its reasons. For example, it said that the automatic renewal term (see above) created a significant imbalance in the rights and obligations of the parties. It also was influenced by the fact that no corresponding benefit was afforded to JJ Richards’ clients and noted the term in question was not necessary to protect JJ Richards’ legitimate interests. Further, the operation of this term was exacerbated by the impact of other unfair terms in the waste management contracts including the exclusivity, price variation and termination clauses (see above). 
In general observation, the court noted that JJ Richards’ contracts were not transparent: they were not expressed in plain English, and were a ‘densely packed page of small print terms and conditions’. 
The ACCC is committed to Fairness in Contracts
At a broad policy level, the case demonstrates the commitment of the ACCC to protect small businesses from the abuse of power that has been frequently exercised by large corporations in contractual negotiations with smaller enterprises. It is also clear that particular terms are a priority: there is a clear focus on terms providing for automatic renewal of contracts, terms that permit unilateral variation (including price increases) or termination of the contract and limitation or indemnity clauses that ‘over-protect’ the dominant corporation
As a result of the recent amendments, and the general emphasis on fairness in contracting (referred to in the opening sentence) it would be wise for businesses to carefully examine their standard form contracts to ensure that they do not contain any rubbish!
This article was written by Rebecca Neophitou. Rebecca is a Scholarly Teaching Fellow in the Department of Business Law and Taxation at the Monash Business School, Monash University.
 Federal Court of Australia  FCA 1224
 Competition and Consumer Act 2010 (Cth), Schedule 2, s23(4)
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