In the first case on small business unfair contracts, Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd [2017] FCA 1224 the Federal Court declared, by consent, that eight terms in the standard form contract used by JJ Richards & Sons Pty Ltd (JJ Richards) to engage small businesses are unfair contract terms under the Australian Consumer Law , and therefore void.

JJ Richards is one of the largest privately-owned waste management companies in Australia and provides recycling, sanitary and green waste collection services. Since 12 November 2016, when the small business unfair contracts terms law came into force, JJ Richards entered into, or renewed, at least 26,000 contracts for it to provide such waste management services.

JJRichards was ordered to take corrective action including advertising and to implement a compliance program.

The terms related to automatic renewal, price variation, agreed times, no credit without notification, exclusivity, credit terms, indemnity and termination.

Justice Moshinsky analysed the clauses as follows:

I accept, that each of the Impugned Terms creates a significant imbalance for the following reasons:
(a) The automatic renewal clause binds customers of JJ Richards (JJR Customers) to subsequent contracts, unless the JJR Customer cancels the contract within 30 days before the end of the initial or any subsequent contract term. In the majority of cases the subsequent contracts, which customers are automatically bound by, are of equal duration to the initial contract’s duration. The clause and, in particular, the limited period of time within which a JJR Customer can terminate the contract and the lack of any requirement in the contract for JJ Richards to provide notice to a customer that the contract is about to expire and that the automatic renewal will otherwise occur, may result in JJR Customers inadvertently missing the opportunity to terminate the contract and therefore remaining contracted to JJ Richards for extensive periods with no opportunity to change to an alternative supplier during the term of the renewed contract. In the context of the whole contract, the automatic renewal clause creates a significant imbalance in the respective rights and obligations of the parties as JJ Richards is more likely to be aware of when customers’ contracts are coming up for renewal than small business customers, who as small businesses have limited resources and competing demands that mean they may not have effective systems in place to identify the termination period for their waste management contract. The significant imbalance arising from the operation of this clause is exacerbated by the operation of certain of the other Impugned Terms, such as the price variation, exclusivity and termination clauses. For example, while JJ Richards has an incentive to contract with, and remain contracted with, as many customers as possible, as the contract requires the customer to use JJ Richards exclusively, the JJR Customer relies on its ability to periodically choose whether to renew or change its supplier of waste management services.

(b) The price variation clause allows JJ Richards to unilaterally increase the price of JJR Waste Management Services for any reason. It creates a significant imbalance because there is not any corresponding right given to the JJR Customer to terminate the contract or obtain a change in the scope or scale of the service provided by JJ Richards or a lower price.

(c) The agreed times clause removes any liability for JJ Richards where performance of JJR Waste Management Services has been prevented or hindered, even where the JJR Customer is not in any way responsible for the prevention or hindrance or where JJ Richards is better placed than the JJR Customer to manage or mitigate the risk of the prevention or hindrance occurring. The agreed times clause causes a significant imbalance in the parties’ rights by absolving JJ Richards of its performance obligations and requiring JJR Customers to assume the risk of non-performance under circumstances that they do not control, without any corresponding benefit to JJR Customers.

(d) The no credit without notification clause allows JJ Richards to charge JJR Customers for services it has not rendered for reasons beyond the JJR Customer’s control or potentially even for reasons that are due to circumstances within JJ Richards’ control, such as failure of its equipment. As JJ Richards is only required to use reasonable endeavours to perform collections at the agreed time due to the operation of clause 6, if JJ Richards attends the JJR Customer’s premises at a different time and is unable to collect the waste for any reason, JJ Richards can still charge the JJR Customer. This causes a significant imbalance in the parties’ rights and obligations under the contract. Further, the clause puts the onus on the JJR Customer to make a credit request, even if the non-performance is in no way the fault of the JJR Customer.

(e) The exclusivity clause requires JJR Customers to obtain all their waste management services from JJ Richards, even when the JJR Customer is seeking additional services to those provided by JJ Richards. Restricting JJR Customers from contracting with other parties for additional services causes a significant imbalance in the parties’ rights and obligations under the contract, because it limits JJR Customers’ general right to contract with whomever they want.

(f) The credit terms clause requires JJR Customers to pay for their account within seven days and allows JJ Richards to suspend services if payment is not received. It also allows JJ Richards to continue charging the JJR Customer while services are suspended to cover costs associated with the overdue payment. This term creates a significant imbalance in the parties’ rights and obligations under the contract, because it confers no corresponding right on JJR Customers, such as the right to withhold payment for the failure to provide services or pass on associated costs that JJR Customers may incur as a result of such a failure.

(g) The indemnity clause creates an unlimited indemnity in favour of JJ Richards, even where the loss incurred by JJ Richards is not the fault of the JJR Customer or could have been avoided or mitigated by JJ Richards. There is no corresponding benefit for the JJR Customer. This broad indemnity causes a significant imbalance in the parties’ rights and obligations under the contract.

(h) The termination clause prevents JJR Customers from terminating their contracts with JJ Richards if they have payments outstanding and entitles JJ Richards to continue charging JJR Customers equipment rental after the termination of the contract, despite the fact that no services are provided. This causes a significant imbalance in the parties’ rights and obligations under the contract as the JJR Customer has no corresponding right and obtains no benefit from the term.

The ASIC Act unfair contract terms provisions which apply to financial services are similar.