Breaching the Unfair Contracts Regime: ACCC v Fujifilm Business Innovation Australia Pty Ltd

By Alicia Hill, Principal, and Darsh Chauhan, Law Clerk

Introduction

On 12 August 2022, Justice Stewart of the Federal Court of Australia delivered judgment in the matter of Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd.

This matter concerned the orders to be made where the parties agreed by consent that the respondent (‘Fuji’) was in breach of the unfair contract terms regime prescribed by section 24 of the Australian Consumer Law.

Background

Fuji was in the business of supplying photocopiers and associated goods and services. After receiving complaints from consumers,[2] the ACCC brought proceedings against Fuji on the basis that some of the provisions contained in its standard form contracts with customers were unfair terms in breach of section 24 of the Australian Consumer Law. The parties subsequently underwent a successful mediation at which they mutually agreed that over 300 individual terms across 34,000 contracts were void. Some examples of terms deemed to be unfair were those which purportedly:

• allowed Fuji to unilaterally vary the prices charged to the customers;
• entitled Fuji to payments for the remaining term of the contract where Fuji terminated the contract and forced customers to forfeit prepayments;
• incorporated terms of other contracts which were difficult for customers to locate;
• conferred rights advantageous to Fuji without prescribing corresponding rights to customers;
• required customers to indemnify Fuji for damage caused to goods by third parties; and,
• had the effect of legally binding the customer at a time where they were yet to receive the goods or services.

Some of the agreements into which Fuji had entered were small business contracts within the meaning of section 23(4) of the Australian Consumer Law. A contract will be classified as a small business contract if:

1. The contract is for the supply of goods and services;
2. The small business employs fewer than 20 people; and,
3. Either the upfront price payable pursuant to the contract is less than $300,000, or, where the contract has a duration longer than 12 months, the upfront price payable is less than $1,000,000.

In earlier proceedings, Fuji had submitted that it was impossible to identify which of the agreements were small business contracts because Fuji did not identify the number of employees of the party with which it entered the contract. It therefore argued that the Court had no power to declare void the terms of those unidentified contracts. Later, however, Fuji provided undertakings to identify which of its contracts were captured by section 23(4) of the Australian Consumer Law.

Decision

Because the parties were in agreement as to Fuji’s liability, the judgment did not require sophisticated engagement or analysis of the applicable legal principles.

Justice Stewart made orders by consent to the following effect:

1. Fuji was restrained from relying on contractual provisions deemed to be unfair under the statutory framework imposed by section 24 of the Australian Consumer Law in respect of its existing contracts and of small business contracts executed within the forthcoming five years;
2. Fuji was to publish an accessible corrective notice on its website informing customers that the unfair terms contained in its standard form contracts were void;
3. Fuji was to communicate correspondence to each individual party affected advising them that some of its terms were void and unenforceable;
4. Fuji was to administer a compliance program with the intended result that it would not seek to implement standard form contracts containing unfair terms in the future; and,
5. Fuji was to pay $250,000 in the ACCC’s costs of the proceeding.

The details of these orders were elaborated upon in the annexures to the judgment, which prescribed in minute particularity the wording and style of the corrective action to be taken by Fuji. For example, the compliance program in which Fuji is to engage mandates that an annual review be carried out by an independent reviewer, who is to publish a report which sets out their findings as to the extent of Fuji’s compliance with the program.

Takeaways

This case serves as an example of the suite of remedies that can be issued in the event that the Court declares unfair contract terms to be void and unenforceable. This is particularly pertinent because the law does not currently permit financial penalties to be imposed for contraventions of the unfair contract regime — indeed, the only pecuniary order made in this matter was as to costs.

Businesses transacting with consumers should therefore continue to take precautions against including provisions which contravene section 24 of the Australian Consumer Law, and should not consider that they bear lesser risk than otherwise possible because the law prevents them from suffering financial consequences in the event of contravention — they may suffer reputational harm and a consequent loss of patronage.

As we have previously foreshadowed there are proposed changes under consideration to the unfair contract term regime to introduce penalties as well as make inclusion of such terms prohibited.  This draft legislation is anticipated to be re-considered by the new Commonwealth government so reviewing and adjusting contract terms potentially vulnerable to challenge is a prudent risk mitigation strategy ahead of the proposed changes.

If you have any questions regarding this decision or any matters raised by it, please feel free to get in contact with Alicia Hill of the MST Dispute Resolution and Litigation team on (03) 8540 0200, or by email at alicia.hill@mst.com.au.

[1] Australian Competition and Consumer Law Commission, ’38 Contract Terms in 11 Fuji Small Business Contracts Declared Unfair and Void’ (Media Release 108/22, 12 August 2022).