Changes to the Australian Consumer Law (ACL), which came into effect on 12 November 2016, aim to extend the unfair contract term protections provided to small businesses to standard form contracts. For a more in depth analysis of the changes, visit Pragma’s explanation here.
The recent Federal Court of Australia decision in Australian Competition and Consumer Commission v Servcorp Limited  FCA 1044 provides some clarity on the scope and effect of this relatively new legislative regime aimed at protecting consumers against unfair contract terms.
Unfair terms identified
Servcorp Limited (Servcorp) carries on the business of providing office space.
The proceeding considered three separate contracts (Contracts) in place between Servcorp and its clients, with each deemed to be a standard form contract and subject to the unfair contract term provisions in the ACL. It was not disputed by Servcorp that at least 12 clauses within the Contracts contained unfair terms. Such unfair terms included that if a party did not give the required notice to terminate the contract, Servcorp could unilaterally vary the price payable under the contract at its absolute discretion without providing the counterparty with a corresponding right to terminate at the time the new term commenced.
Other unfair terms identified by the Court included:
- unreasonable limitation clauses;
- an automatic renewal clause (commonly seen in commercial contracts); and
- a clause allowing Servcorp to retain a customer’s security deposit if they did not request it back.
It was also common ground that these terms were not reasonably necessary to protect the legitimate business interest of Servcorp.
After considering the provisions in the Contracts, Markovic J decided that each contained terms that created significant imbalance between the parties and would cause detriment if they were relied on by Servcorp. As a result, Servcorp has been ordered to establish and implement a compliance program that ensures future contracts satisfy the requirements of the ACL as well as paying the regulator’s costs of the proceeding (estimated to be in the vicinity of $150,000).
The unfair contract term regime is still in its early days and each case decided provides greater clarification for businesses that impose standard form contracts on their clients, customers and suppliers. If you are unsure of your rights and obligations under the unfair contracts regime, you should consider seeking legal advice.