Taking a Redline Through Contracts – Courts start enforcing the unfair terms regime
In November 2016 the unfair terms laws regime came into play affecting small business contracts, including most franchise agreements and many other standard contracts used within a franchise network.
While the courts have yet to test any franchise related standard contracts against this new regime, the Federal Court have recently declare eight specific terms in standard form contracts used by JJ Richards, a waste management business, as unfair, and consequently these specific terms “void” (unable to be enforced).
Again, while this case did not deal with a franchising situation, the JJ Richards situation does assist in giving insights as to what terms the courts may rule as unfair and consequently void. From this, Franchisors should take care in reviewing their standard form agreements to ensure that that any similar terms are not used, and/or if used there are legitimate commercial reasons that can be easily provided to back up the need to include them.
Briefly, the problematic terms from the JJ Richards situation included terms that:
- allowed them to unilaterally increase their prices;
- granted them exclusive rights to remove waste from a customer’s premises;
- bound its customers to automatic rolling over contracts unless the customer first canceled the contract within 30 days before the end of the relevant contract’s Term;
- allowed them to charge their customers for services not provided, irrelevant if caused by reasons beyond their customer’s control;
- allowed them to suspend its service but still continue to charge their customer if payment was not made after 7 days;
- prevented their customers from terminating their contracts where they have outstanding payments while entitling JJ Richards to continue charging after the termination of the contract equipment rental;
- removed their liability where JJ Richards performance was prevented or hindered in any way; and
- created in JJ Richard’s favour an unlimited indemnity;
Following this decision, the ACCC deputy chair Dr Michael Schaper has effectively said that this serves as reminder to businesses the need to review their standard agreements and that “the ACCC will not hesitate to take appropriate action to ensure large businesses are complying with the unfair contract terms provisions.”
It is only a matter of time before the courts start turning to franchise agreements and other related documents, so it is recommended if you have not already, you work with an experienced franchising lawyer to firstly be aware of what are your standard form agreements that may fall under this regime and then have such reviewed and updated to avoid falling foul of this regime.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.