By Rohan Vasudevan, Solicitor |
14 September 2022
It happens so often that consumers and small businesses may not realise just how many standard form contracts they are presented with every day. Agreements such as software agreements (or “click and accept agreements”), gym memberships, car parking conditions of entry, trade promotion terms and conditions, website terms, and product hire agreements are all examples of standard form contracts. These sorts of agreements are necessary across all facets of life. While the terms of such contracts are, in the first instance, legally binding on both parties as contracts, a recent Federal Court case involving the ACCC and Fujifilm Business Innovation Australia Pty Ltd (Fujifilm) is a timely reminder of the consequences for brands that have standard form contracts that contain unfair terms.
What are unfair contract terms?
The Australian Consumer Law (ACL) contains the relevant provisions protecting consumers and small businesses (i.e. a business that employs less than 20 people) from unfair contract terms, and provides that unfair terms are those that:
- would cause a significant imbalance in a party’s rights under the contract; AND
- are not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term/s; AND
- would cause detriment to a party if they were to be relied on.
Examples of unfair terms are terms that:
- allow one party but not the other to change the contract;
- limit a party’s right to sue the other party unreasonably;
- avoid or limit liability for negligence;
- allow one party (but not the other) to determine if a contract has been breached; or
- penalise one party (but not the other) for a breach of the contract or for terminating the contract.
The prohibitions against unfair contract terms relate to standard form contracts entered into or renewed on or after 12 November 2016, where:
- the contract is for the supply of goods or services or the sale or grant of an interest in land; AND
- at least one of the parties is a small business; AND
- the upfront price payable is no more than $300,000 or $1 million (if the contract is for more than 12 months).
From an enforcement perspective, businesses are technically not prohibited from including unfair terms in contracts. It is only when a dispute about an unfair contract term arises and the term is assessed by a court or tribunal can such a forum actually determine whether a term is “unfair”. Moreover, if a court or tribunal finds that a contract contains unfair terms, no penalties will be imposed. Instead, the specific unfair term or terms will be deemed void and unenforceable. That is, if a contract contains unfair terms, the rest of the contract can remain binding. Having some of the clauses upon which you may have relied being deemed unenforceable is still very impactful of course, and may also lead to significant cost for a business, in addition to the negative PR and brand equity that may arise from such matters becoming public.
What is a standard form contract?
To understand what happened in the Fujifilm case, it is important to understand what a standard form contract actually is. In short, a standard form contract is an agreement whereby the terms of the cannot be varied or changed – i.e. the contract is presented on a “take it or leave it” basis, and little to no negotiations about the contract can take place. On face value this is understandable and sensible, given the high cadence of sales under these contracts. If brands had to renegotiate the terms of its engagements with every user/customer/client, this would be more than just onerous – it would be functionally impossible.
That said, standard from contracts are legally binding documents. However, given the inherent power balance when one party can impose “take it or leave it” conditions on consumers, the ACL codifies provisions that regulate what cannot be contained within these sorts of agreements due to fairness considerations. When a clause is considered unfair, the clause is essentially unenforceable and deemed struck out of the relevant contract, and the relevant entity will not be able to enforce it against the consumer/small business. The legislation is relatively clear on what are (and are not) unfair terms, and the question of whether or not the relevant contract contained unfair terms was the basis of the Fujifilm case.
Since November 2016, Fujifilm had entered into contracts with small business customers for the supply of printing goods and services, all of which involved standard form contracts. The 11 types of agreements that were analysed by the Federal Court included software licence and support services agreements, rental agreements, purchasing agreements, fixed lease rental agreements and customer rental agreements.
Approximately 34,000 contracts were made between Fujifilm and business customers, including numerous small businesses, with many of these contracts still being in force today.
The ACCC brought proceedings against Fujifilm after receiving numerous complaints from small business owners regarding the terms that were contained within Fujifilm’s contracts.
Giving it a fair go
When determining if the term or terms contained within a contract are unfair, the court or tribunal will take into account numerous factors, including:
- the bargaining power of the parties to the contract;
- if there were any discussions made before the contract was entered;
- if the party was required to accept or reject the terms of the contract;
- the form the contract was presented in;
- if a party was given an opportunity to negotiate the terms of the contract; and
- if the contract takes into account the characteristics of the transaction.
In the recent Fujifilm case, the Federal Court balanced these factors and came to its decision. The Federal Court found that there were numerous unfair terms contained within Fujifilm’s standard form contracts. The kinds of terms that were deemed unfair included:
- terms that meant contracts automatically renewed unless customers cancelled before the term of the contract;
- terms that gave Fujifilm broad rights to terminate contracts in a wide range of situations whereas the customer’s ability to terminate were very limited;
- terms that limited Fujifilm’s liability or required customers to indemnify Fujifilm without corresponding rights for the customer;
- terms that required customers to pay excessive exit fees and allowed Fujifilm to set charges unilaterally;
- in relation to software licensing agreements, terms that required customers to pay Fujifilm irrespective of if Fujifilm delivered the software;
- in relation to contracts pertaining to the purchasing of goods, terms that outlined that customers were required to pay the purchase price prior to delivery of the good; and
- terms that allowed Fujifilm to unilaterally vary terms of the contract.
What was the outcome of the case?
The Federal Court ordered Fujifilm to stop attempting to enforce the terms deemed unfair, and contact any customer who had entered into a contract with the unfair terms, and notify the customer of the Federal Court’s decision. The case is certainly a reminder that businesses should be aware of exactly what is contained within all of their agreements, even those that are given on a take it or leave it basis. Also, the case is a strong reminder that although standard form contracts are widely used and common in everyday life, businesses should be aware of the dangers of having agreements with consumers and small businesses that contain unfair terms.
If you would like further information on standard form contracts and have them re-reviewed in light of the above, please contact one of our experts.