Toothless Tiger, Hidden Dragon? The ACCC’s New Year’s Resolutions

By Eleanor DeMarzi, Lawyer, MST Lawyers

The Australian Competition and Consumer Commission (ACCC) has announced it will be fighting tooth and nail in 2017 – demanding higher penalties, confronting the market leaders and defending small businesses against unfair standard form contracts. Investigations are underway and the ACCC will be taking enforcement action this year against numerous companies for unfair terms in business-to-business standard form contracts.   

The announcement is part of the ACCC’s broader 2017 enforcement priorities targeting:

  • misleading and deceptive conduct, in particular by salespeople;
  • cartels and anti-competitive conduct particularly in the commercial construction, energy, health and agricultural industries;
  • consumer guarantees in the airline, telecommunication and motor vehicle industries;
  • non-compliance with the Franchising Code of Conduct, the Food and Grocery Code and the Horticulture Code;
  • non-disclosure in the health insurance sector;
  • companies failing to meet broadband performance and speed claims; and
  • businesses charging excessive surcharges on debit and credit card purchases.

The ACCC’s targets

The unfair contract terms regime that protects small businesses applies to “standard form” contracts for goods, services or interests in land entered into, renewed or varied on or after 12 November 2016.  This law applies when one of the contracting parties employs fewer than 20 people at the time the contract is entered into.  In addition, the upfront price under the contract must be less than $300,000, or $1 million if the contract term extends beyond a 12 month period.  “Unfair” terms in these contracts may be declared void by a court and compensation or injunctions ordered if the term is relied on (in the future) despite the court’s order.

The ACCC encourages small businesses to report unfair terms via their website.  Since November 2016, 48 complaints have been made.  The advertising, retail leasing, franchising, independent contracting, telecommunications, waste management and agricultural sectors have been the subject of many complaints and have featured in the ACCC’s recent unfair contracts report.

The ACCC’s report identified the principal terms of concern. These included common “entire agreement” clauses, restraints of trade and liquidated damages clauses.  The ACCC’s recent announcement pointedly criticises clauses that are overly one-sided and are still in use despite the report finding such clauses to be potentially unfair, particularly:

  • broad indemnities or limitations of liability;
  • unilateral and unreasonable ability to terminate or vary a contract;
  • unreasonably preventing a party from exiting the contract (i.e. rollover clauses); and
  • payment terms (such as unilateral delay in payment times).

Heed the ACCC’s alarm

Irrespective of whether the ACCC’s 2017 enforcement action involves Federal Court proceedings or infringement notices, businesses must take into account their stern warnings and the constant stream of media releases.  The ACCC has offered detailed guidance on terms and industries likely to be challenged.  The meaning of “unfair” has also been judicially interpreted in analogous consumer contexts for several years.  It is ultimately a matter for a court or tribunal to decide whether a term is unfair in all the circumstances.

Given the ACCC’s recent proceedings against Pastacup ( a relatively small name in the business world), alleging disclosure breaches of the Franchising Code of Conduct, its first small business unfair contract test case may not necessarily be against a big-name brand.

Besides the ACCC or ASIC, aggrieved small businesses are entitled to commence a civil action for orders under the new laws.  Recent reports have also indicated a potential class action by franchisees of a petrol retailer in relation to workplace relations laws.

If you transact in goods or services, franchising, retail leasing, financial services, business loans or credit cards, you may be exposed to an ACCC investigation or a private claim. 

Next Steps

  1. Consider whether you are covered by the new laws. Are you contracting with a small business?  Are your contracts (including ancillary documents and guarantees) “standard form”?  Do you fall within any exclusions?
  1. Could any of your contract terms be “unfair”? Do they create an imbalance between the parties?  Are they reasonably necessary to protect your business’ legitimate interests?  Would they cause detriment to the other party?
  1. You must generate clear and thorough internal records to evidence that you have received advice on the new laws and carefully reviewed your contract terms. It is important to make documented amendments or deletions or reasoned decisions not to, or introduce severance clauses or “balancing” provisions to counteract any unfairness. You also need to educate staff (and prospective contracting parties) and implement a process for documenting negotiation and disputation of contract terms, given the laws only apply to “standard form” contracts.  These steps will be crucial in defending any ACCC investigation or claim. 

Businesses looking to avoid the attention of the ACCC are also advised to note that the prohibitions against misleading or deceptive conduct and unconscionable conduct may be simultaneously relied upon by the ACCC, or a small business, in any unfair contract matter. This emphasises the need for businesses to routinely review their contract terms.

Just how far the ACCC will bare its teeth over the new laws remains to be seen.     

For more information on how MST Lawyers can you, please contact our Corporate Advisory and Franchising team at franchise@mst.com.au or on +61 3 8540 0200.