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ACCC continues to combat unfair contract terms

10 December 2018

#Corporate & Commercial Law

Darren Pereira

Published by Darren Pereira, Olivia Pasternak

ACCC continues to combat unfair contract terms

The ACCC has recently cracked down on the waste management sector in relation to their use of unfair contract terms (UCT) in standard form contracts. Further, the ACCC is advocating for the “toughening up” of UCT laws in order to ensure that large businesses toe the line.

Background

From 12 November 2016, the existing UCT protections for consumers were extended to cover standard form contracts entered into by small businesses. Since then, the ACCC has initiated numerous enforcement actions, including two of which that have been the subject of judgment in the Federal Court (see our previous articles on ACCC v JJ Richards and ACCC v Servcorp here and here).

More recently, the ACCC commenced an investigation into Visy Paper Pty Ltd (trading as Visy Recycling), Cleanaway Pty Ltd and Suez Recycling & Recovery Pty Ltd (the Waste Management Companies) regarding concerns that certain terms in their standard contract were unfair.

Waste Management Companies

Following the ACCC’s investigation, the Waste Management Companies have agreed to make amendments to particular clauses in their standard contracts which the ACCC have perceived to be unfair. Specifically, the clauses amended or removed related to price variation and liquidated damages. 

These clauses allowed the Waste Management Companies to unilaterally increase their prices in specified circumstances. By way of example, Visy Recycling customers did not have a right to terminate their contracts if they were unhappy with price increases.

In some instances, the contracts imposed penalties on customers who wanted to exit their contracts before the end of the contract term. For example, Visy Recycling’s standard contract required that customers wishing to exit their contract early had to pay the average monthly fees for the previous 12 months multiplied by the remaining number of months on the contract. Both Cleanaway’s and Suez’s liquidated damages clause required that if customers ended their contract early, they had to pay a percentage of the payments remaining over the life of their contract. 

The ACCC was of the view that customers under these various contracts had no of way assessing the reasoning for any price increases which would be unilaterally determined by the Waste Management Companies.

Call for legislative change

The ACCC has identified two major limitations that it faces in what it can do to hold companies accountable for prior conduct in their dealings and the needed changes to strengthen the protections offered. 

Firstly, that unfair contract terms are not illegal. Currently, the Australian Consumer Law does not prohibit an UCT from being included in a contract in the first place. Instead, it only allows a potentially UCT to be challenged in a court so it can be declared void. This means that a company can include such a term in their contract and the only form of recourse is if the ACCC decides to investigate and challenge the UCT in court so that the company may be forced to remove it. 

The second biggest limitation posed to the ACCC is that it cannot seek civil pecuniary penalties when a term in a contract is declared unfair and void by the court. Additionally, the ACCC cannot issue infringement notices for contract terms that are likely to be unfair. By making unfair contract terms illegal, the ACCC would be able to seek pecuniary penalties and issue infringement notices.

These flaws mean that companies can simply amend their unfair contract terms when the ACCC raises an issue with them, and there is nothing that the ACCC can do to hold them to account for prior conduct. The ACCC contends that penalties and infringement notices should apply if unfair contract terms are included in standard form contracts. Otherwise, no real incentive exists for businesses to ensure their standard contract do not contain such terms.

On this basis, the ACCC is calling for legislative change declaring that courts should be enabled to impose penalties and order compensation for consumers or small businesses where large businesses take advantage of unfair terms in those dealings. 

We note that the Government is currently collecting feedback on UCT for its review (see our article in relation to this here). 

How we can help?

  • if your business is using standard form contracts and you are unsure as to the validity of any of the clauses used, we can review such agreements and provide you with advice
  • we can work with you to amend your agreements to ensure that the terms contained are valid and enforceable 
  • we will also keep you updated as to any UCT reforms which may increase the ACCC’s powers and/or the courts. 

Authors: Darren Pereira & Olivia Pasternak

Contacts:

Sydney
Darren Pereira, Partner 
T: +61 2 8083 0487 
E: darren.pereira@holdingredlich.com

Melbourne
Dan Pearce, Partner
T: +61 3 9321 9841
E: dan.pearce@holdingredlich.com

Brisbane
Trent Taylor, Partner
T: +61 7 3135 0668
E: trent.taylor@holdingredlich.com

Disclaimer

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

Darren Pereira

Published by Darren Pereira, Olivia Pasternak

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