The ACCC has recently announced that it will continue to educate businesses on their rights under the extended unfair contract terms (UCTs) regime, reminding traders of the potential for court action if it views such enforcement measures necessary.
Since the extension of UCT protections to small business contracts last November, the ACCC has celebrated a milestone win, with the Court finding that eight of the terms and conditions in JJ Richards' waste management contracts with small businesses were void for being unfair.1
With respect to financial services contracts, ASIC and ASBFEO have similarly been active in monitoring compliance with the regime. They have successfully negotiated a commitment from the big four banks to remove potential UCTs in their small business contracts, including:2
- entire agreement clauses that would have restricted borrowers from commencing proceedings where they have relied on statements and representations made outside the written contract;
- broad indemnity clauses including provisions that push the risk of losses or damage caused by the negligence, fraud or wilful misconduct of the bank or its agent to the borrower;
- material adverse change event clauses, thus preventing banks from terminating the loan contract for an unspecified negative change in the borrower's circumstances; and
- broad unilateral variation clauses. Instead, customers will be given a 30 to 90 day window to exit the contract if the type of variation was likely to trigger an intention to terminate the agreement.
REDUCING THE UCT RISK
In addition to those clauses identified above, other common terms found in financial services contracts at risk of being unfair include:
- Limitation of liability clauses – The clause is likely to be unfair if it excludes liability for risks that the Financial Service Provider (FSP) is in a better position to know and insure against (e.g. excluding liability for acts of the FSP's staff members). The scope of exclusion could be narrowed such that it operates to the extent necessary to protect the FSP's legitimate business interests.
- Where 'events of default' includes even minor breaches – Such clauses are unfair where it leads to severe consequences for the consumer/small business even for trivial breaches. Instead, consider giving the breaching party an opportunity to remedy the breach.
- Inserting the word 'reasonable' – ASIC has made it clear that merely using the word 'reasonable' will not necessarily save a term from being unfair. The UK's Competition and Markets Authority is of a similar view3 — commenting that a vague 'reasonableness' requirement may still allow the power to be exercised in an unexpected manner, and to the consumer's detriment, particularly where parties differ on what 'reasonableness' entails.4
- Clauses that allow the contract to be assigned without consent – ASIC's concern is that the assignment could be effected to the detriment of the consumer (e.g. if the assignment results in the consumers having to accept a different standard of service to what had originally been agreed). It may also be unfair if, following the assignment, a party's right to sue is reduced. A similar approach to that of unilateral variation clauses could be adopted to rebalance the parties' rights and obligations.
- Clauses that give the right to complete blank spaces in documentation – To balance the term, consider including a requirement that the consumer/small business be provided with a copy of the updated contract, containing the insertions, and giving them a reasonable amount of time to review and respond.
Clauses at risk of being UCTs may be given extra emphasis through formatting techniques (e.g. font size, colour, highlighting) but caution should be exercised as terms that do not receive the same treatment in the document could have a reduced prominence, making them less transparent when scrutinised under the UCT regime.
Importantly, a transparent term will not preclude a finding of unfairness, particularly if it causes a significant imbalance in the parties' rights; is not reasonably necessary to protect legitimate interests; and would result in detriment where relied upon.
ACCC CONTINUES ITS ENFORCEMENT ACTION
The ACCC has recently been granted leave to replace and re-file its originating application against Servcorp Ltd in respect of a claim it has breached the UCT legislation. Interestingly, some of the impugned terms concern those that have not previously been litigated and which are not included in the list of UCT examples under s 25 of the ACL, or s 12BH of the ASIC Act. These include, for example, terms imposing differing notice requirements between Servcorp and its clients; insurance obligations imposed on the client; and Servcorp's discretion to pay repair costs at the client's expense.
It is clear that the application of the UCT regime on small businesses remains a clear focus for regulators. Rather than waiting for complaints, regulators are undertaking their own reviews of contracts which consumers and small business are often forced to accept on a 'take it or leave it' basis. The ACCC has revealed that major businesses have already amended their standard form contracts to respond to the UCT concerns. As such, it would be prudent for all organisations to continue to review their standard form contracts to ensure they remain compliant with the UCT laws.
1 Australian Competition and Consumer Commission v JJ Richards & Sons Pty Ltd  FCA 1224.
2 ASIC Media Release " Big four banks change loan contracts to eliminate unfair terms" (24 August 2017).
3 Competitions and Markets Authority, CMA37: Unfair contract terms guidance (2015).
4 Ibid [5.21.9].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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