ACCC not putting up with any rubbish in small business contracts

The Australian Competition & Consumer Commission (ACCC) has taken court action against JJ Richards & Sons Pty Ltd (JJ Richards), a major Australian waste collection business, alleging that a number of clauses in its standard form waste collection contracts with small businesses are unfair. This is the first time the consumer watchdog has taken action to enforce the new unfair contract terms provisions in the Australian Consumer Law (ACL) for a small business contract, since the law was extended to protect small businesses on 12 November 2016.

What happened?
On 6 September 2017, the ACCC initiated proceedings in the Federal Court against JJ Richards, one of Australia’s largest privately owned waste management companies. It alleges that eight clauses in JJ Richards’ standard form commercial waste collection contract are ‘unfair’ under the ACL and therefore void when contracting with small businesses. The clauses in question:

• bind customers to subsequent contracts unless they cancel the contract within 30 days before the end of the term
• allow JJ Richards to unilaterally increase its prices
• exclude JJ Richards’ liability where its performance is “prevented or hindered in any way”
• allow JJ Richards to charge customers for services not rendered for reasons outside the customer’s control
• grant JJ Richards exclusive rights to remove waste from a customer’s premises
• allow JJ Richards to suspend its service but continue to charge the customer if payment is not made after seven days
• create an unlimited indemnity in favour of JJ Richards, and
• prevent customers from terminating their contracts if they have payments outstanding and entitle JJ Richards to continue charging customers equipment rental after the termination of the contract.

The ACCC is seeking a declaration that the terms are unfair and therefore void, as well as an injunction to prevent JJ Richards from relying on such terms in small business contracts in the future. If the relevant contracts are capable of operating without the unfair terms, they will remain on foot and bind the parties.

Why is this important?
The ACCC Deputy Chair Dr Michael Schaper believes that this should be a reminder to large businesses to review their standard form contracts to ensure the terms are not unfair to small businesses. If a court finds key terms of your standard form contracts to be unfair, they will not be binding, which may leave your business open to significant risk.  For example, if a liability or indemnity is struck down, you may be left without any limitation of liability or indemnity against your losses.

Many of the clauses the ACCC alleges are unfair are the kinds of clauses the ACCC has flagged it considers are likely to be unfair.  However, it is interesting that the ACCC has also alleged that an exclusivity clause is unfair.  Normally, exclusivity clauses would be attacked as anti-competitive under the competition law, but only if they substantially lessen competition in the overall market.  Here, the ACCC is saying that even if they are not anti-competitive, it thinks they may still be unfair.  If successful on this point, this will be a further major restriction on the kinds of clauses that can be imposed on consumers and small businesses.

A term will be considered unfair if it:

• would cause significant imbalance in the rights and obligations of the parties
• is not reasonably necessary to protect the legitimate interests of the business advantaged by the term, and
• would cause detriment to a party if applied or relied upon.

The ACCC has released a Report which identifies terms that are likely to be considered unfair across a range of industries, and provides guidance for how businesses can minimum risks of infringing the unfair contract terms regime.

If you have any questions about these proceedings or how to ensure your business is compliant with the unfair contract terms regime please contact Paul McLachlan, Alex Hutchens or Belinda Breakspear.  We have been assisting a number of our clients to review and rewrite their standard form consumer and small business contracts to remove unfair terms.

Paul McLachlan

Alex Hutchens

Belinda Breakspear

Eliza Humble

Unfair contract terms regime

The long-awaited laws protecting small businesses from unfair terms have taken effect across Australia. As of 12 November 2016, any terms that are ‘unfair’ in new or renewed contracts could be deemed void and unenforceable. While we are yet to see how the courts and tribunals will interpret this new legislation, the ACCC released a report last week providing a breakdown of some common worrying terms identified in the advertising, telecommunications, retail leasing, independent contracting, franchising, waste management and agriculture industries. The report provides practical guidance on how businesses can comply with these new laws including practical examples of the kinds of changes the ACCC recommends businesses make. 

Significant Change - Australian Government’s effect on competition

Significant Change -  Australian Government’s effect on competition

Paul McLachlan, John Kettle, Alex Hutchens

The Australian Government announced today that it will amend section 46 of the Competition and Consumer Act 2010 (Cth) so that it is illegal for powerful companies to act anti-competitively.  Specifically, the law will prohibit a company with substantial market power from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in a market.

It is not an exaggeration to say that this is the most substantial reform of Australia’s competition law since the introduction of the Trade Practices Act in 1974.

McCullough Robertson advocated for a change to the law in the consultation on the proposed changes.  Most Australian firms have lobbied for there to be no change.

The current section 46 requires that the company with market power have ‘taken advantage’ of its market power for particular purposes.  The High Court has interpreted that obligation so that it is very difficult to prove a misuse of market power where the company could have engaged in the same conduct even if it did not have market power.  In practice, this has proved to be a very high hurdle, with courts usually finding that the firm’s conduct did not need and rely on the market power.  Despite widespread concerns about the power of large suppliers/customers in various industries, the ACCC has rarely succeeded in any prosecutions it has brought under the section.

The proposed section 46 will lower that hurdle substantially.  In many of the cases the ACCC has lost, the court has still found there to be a collective arrangement that substantially lessened competition (breaching other provisions of the Act).  Now, there will be no need to prove the existence of an agreement.  Any unilateral conduct by a firm with market power will be illegal if it has the effect of substantially lessening competition in a market (or is likely to): even where the effect is an unintended consequence, and even if the conduct was conduct that small firms can and do engage in.

This will bring Australian law much closer to the way competition law applies to single firm conduct in the European Union.  The experience in the European Union is that cases based on abuse of dominance are common (both by the European Commission and by private litigants) and have a strong success rate.

The reform implements the recommendations of last year’s Harper Review in full, after a further consultation by the Australian Government on this change specifically.  It recognises that when firms with market power engage in conduct, it can have vastly different effects on competition than when small firms engage in the same conduct.  Australian law has never recognised that distinction to date.

Please contact Paul, John or Alex for any information or discussion on this or any other competition issue.

Alex Hutchens

Paul McLachlan

John Kettle

Protections for small businesses against unfair contract terms

Alex Hutchens, John Kettle, Malcolm McBratney, Paul McLachlan

Under the Australian Consumer Law, unfair terms in standard form contracts with consumers can be declared void, but small businesses (who are often subject to the same power imbalance when negotiating agreements with large suppliers) have to date had no protection under that regime.

On 18 August 2015, a Bill to extend protections against unfair contract terms to small businesses passed the House of Representatives. The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth) has already been referred to the Senate Economics Legislation Committee which is due to report on the legislation on 14 September 2015.

Competitive Tension - Harper Review Final Report recommends some real change

Paul McLachlan, John Kettle, Brett Heading

The Commonwealth Government has been conducting a review of Australia’s competition laws to see if they are fit for purpose.  (Click here to see what we had to say about the draft recommendations last October).  The Minister for Small Business released the Final Report of the Competition Policy Review Panel on Tuesday (31 March 2015).  While a number of the draft recommendations have made it into the Final Report, there are also some significant new changes.  Some will fundamentally change the competition law landscape in Australia…if they eventually get into the legislation.

Harper Review Draft Report: An appetite for reform

 

Alex Hutchens, John Kettle, Paul McLachlan, Kiran Bath

The much anticipated draft report of the Competition Policy Review Panel was released last week with the Panel making over 50 draft recommendations.  With over 300 submissions considered and over 300 pages making up the draft report, one thing is clear from the broad array of issues addressed: Australia’s competition policy is in need of a makeover.

The Panel took seriously its mandate to undertake a ‘root and branch’ review of competition law.  It considered sectors of the economy that are currently exempt from competition law and made specific recommendations about them.  The panel also made overall recommendations relating to competition law generally and the agencies that administer competition law.