In the case of Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd  FCA 1224 (‘JJ Richards and Sons’) the Federal Court for the first time extended the unfair contract term regime to protect small businesses from unfair contract terms, allowing small businesses the opportunity to gain protection from unfair contract terms entered into with larger entities. The Court found that JJ Richards and Sons had 8 different unfair contract terms in its contracts with small businesses and found that these terms were void. Contracts for the supply of goods and/or services will amount to a ‘small business contract’ if the small business employs fewer than 20 people and the upfront price payable is no more than $300,000.00 or $1,000,000.00 for contracts that are longer than 12 months.
The unfair contracts regime was introduced in 2010 as part and parcel of the Australian Consumer Law (‘ACL’) in order to provide consumers with protection against unfair contract terms arising from the proliferation of Standard Form Contracts (‘SFC’) in the consumer era. This was deemed necessary as SFCs do not resemble traditional contracts which are individualised and allow both parties to negotiate terms. Instead SFCs are generally prepared unilaterally before any discussion relating to the transaction occurs between the parties, are almost inevitably long and complex and are usually presented to consumers on a take it or leave it basis.
Distinguishing features of unfair contract terms include that the term:
- Creates a significant imbalance between the parties’ rights and obligations;
- Is excessive or one sided;
- Is detrimental to one party; and
- Is not reasonably necessary to protect the legitimate interests of party who is advantaged by the term.
Examples of terms which might potentially be construed as unfair include terms that:
- Permits only one of the parties to avoid or limit performance of the contract;
- Permits only one of the parties to terminate the contract;
- Penalises only one of the parties for a breach or termination of the contract.
- Create an automatic rollover of the contract;
- Require one party to bear the risk of some event;
- Levy excessive fees or impose excessive interest rates; and
- Affect a party’s ability to redress or remedy a breach by the benefiting party.
The implications of the extension of the unfair contract terms regime to protect small businesses contracts is clearly beneficial to small businesses. It means that they can now rely on the ACL to ensure that they are protected from unfair contract terms. For the organisations who draw up the SFSs it is an opportunity to redraw the contracts with small businesses to ensure that they are in compliance with the ACL, to consider revising terms which might be deemed to be unfair, or even to find alternative means of ensuring that the terms are enforceable, for instance ensuring that the term in question has been adequately drawn to the other party’s attention.