The ACCC has published an enforcement update relating to a recent Federal Court declaration that 12 terms in standard form contracts used by 2 subsidiaries of Servcorp Ltd were unfair, and therefore void.

Servcorp Ltd is one of the largest suppliers of serviced office space to small businesses in Australia.  The terms declared to be unfair included those that had the effect of:

• automatically renewing a customer’s contract, unless the customer had opted out, and allowing Servcorp to then unilaterally increase the contract price;
• permitting Servcorp to unilaterally terminate contracts;
• unreasonably limiting Servcorp’s liability or imposing unreasonable liability on the customer; and
• permitting Servcorp to keep a customer’s security deposit if a customer failed to request its return.

The ACCC instituted proceedings against Servcorp Ltd and its 2 subsidiaries (Servcorp Parramatta Pty Ltd and Servcorp Melbourne 18 Pty Ltd) in September 2017.  The action against Servcorp and its subsidiaries was only the 2nd business-to-business unfair contract terms case that the ACCC had commenced since the unfair contract terms regime came into effect in November 2016.

In addition to the declaration that 12 terms in its standard form contracts were unfair, and therefore void, the other outcomes for Servcorp were that:

• Servcorp was ordered to pay the ACCC’s legal costs relating to the proceedings; and
• Servcorp has been required to establish an unfair contract terms compliance program for its Australian business.

Click here for a link to the ACCC enforcement update.

Key Points

Some key points to note about the unfair contract terms regime in Australia are as follows:

• The Australian Consumer Law protects small businesses from unfair terms in “standard form contracts”.
• A “standard form contract” is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms – that is, it is offered on a ‘take it or leave it’ basis.
• The law relating to unfair contract terms applies to standard form contracts entered into or renewed on or after 12 November 2016, where:
• the relevant contract is for the supply of goods or services or the sale or grant of an interest in land;
• at least one of the parties is a small business (i.e. a business that employs less than 20 people, including casual employees employed on a regular and systematic basis); and
• the upfront price payable under the contract is not more than $300,000 (or $1 million if the contract is for more than 12 months).
• If a standard form contract that was in operation before 12 November 2016 is varied on or after 12 November 2016, the law relating to unfair contract terms applies to the varied terms.
• If a court or tribunal finds that a term is ‘unfair’, the term will be void (i.e. the term will not be legally binding on the parties).  The rest of the contract can continue to bind the parties to the extent it is capable of operating without the unfair term. 
• If a party to a contract seeks to apply or rely upon a term that a court has declared unfair, the court may grant:
• an injunction restraining the other party from acting upon the term;
• compensation; and
• any other orders that the court thinks appropriate.
• Examples of terms that may be unfair include:
• terms that enable one party (but not another) to avoid or limit their obligations under the contract;
• terms that enable one party (but not another) to terminate the contract;
• terms that penalise one party (but not another) for breaching or terminating the contract; and
• terms that enable one party (but not another) to vary the terms of the contract.
• The law relating to unfair contract terms does not apply to certain standard form contracts, such as:
• contracts entered into before 12 November 2016 (unless renewed on or after that date);
• shipping contracts; and
• constitutions of companies, managed investment schemes or other kinds of bodies.

For more information on the unfair contract terms regime in Australia, and for general Australian Consumer Law compliance advice, please contact:

Craig Sanford, Director, Sierra Legal on M: +61 (0)416 052 115 or E: csanford@sierralegal.com.au

Mike Jeffery, Director, Sierra Legal on M: +61 (0)402 745 054 or E: mjeffery@sierralegal.com.au

Kenneth Gitahi, Senior Associate, Sierra Legal on M: +61 (0)401 450 220 or E: kgitahi@sierralegal.com.au