Sydney Office Update January Leasing Magazine | Page 14

11 | SYDNEY OFFICE UPDATE
UNFAIR CONTRACT TERMS
BY JHK LEGAL I N AS SOCIATION W ITH R AY WHITE CO MME RC IA L
From 12 November 2016, new
legislation was implemented
whereby unfair contract term
protections were extended to
cover small business contracts
rather than just contracts
between individual consumers.
This has had significant implications
for business to business transactions
including leases with small businesses.
The Australian Competition &
Consumer Commission (“ACCC”) is
currently taking steps to enforce the
protections afforded by the extended
unfair contract terms in seeking to
have contract terms deemed void.
One recent example is action taken by
the ACCC against JJ Richards & Sons
Pty Ltd (“JJ Richards”) in the Federal
Court of Australia seeking declarations
that certain terms in the standard form
contract used by JJ Richards from
12 November 2016 were void and
unenforceable.
BACKGROUND
To provide a background to the
changes in the unfair contract term
legislation we advise as follows:
Contracts covered by extension
of the protections
A 
The new legislation will apply to small
business contracts including leases, in
standard form entered into or renewed
on or after 12 November 2016. The
following contracts will be affected:
(i) Where the contract is for the supply
of goods or services or the sale of an
interest in land;
(ii) At least one party is a small
business, being a business that
employs less than 20 people;
(iii) The upfront price payable
under the contract is no more than
$300,000.00 or $1,000,000.00 if the
contract is for a term of more than
12 months.
B
What is a standard form contract
A standard from contract is one that
has been prepared by one party to the
contract and the other party has little
or no opportunity to negotiate the
terms – that is, it is offered on a “take it
or leave it” basis.
C
What is an unfair contract term

Under the Australian Consumer Law,
an unfair contract term is a term that:
(i) Causes significant imbalance in the
parties’ rights and obligations;
(ii) Is not reasonably necessary to
protect the interests of the party who
would be advantaged by the term; and
(iii) Causes detriment (financial or
otherwise) to a party if it were to be
relied upon.
In order for a term to be unfair, it must
satisfy all criteria. The Court will look at
the contract as a whole to determine
whether the term is unfair.
JJ RICHARDSON CASE
As one of the first court actions
brought by the ACCC, declarations
were sought seeking the following
contract terms as void an
unenforceable in the standard form
contract used by JJ Richards:
(i) Binding customers to subsequent
contracts unless they cancel the
contract within 30 days before the end
of the term or otherwise known as roll
over terms;
(ii) Allowing JJ Richards to unilaterally
increase its price without reference to
the other party;
(iii) Removing any liability for JJ
Richards its performance is “prevented
or hindered in any way”;
(iv) Allowing JJ Richards to charge
customers for services not rendered
even when caused by reasons beyond
the customer’s control;
(v) Granting JJ Richards exclusive rights
to remove waste from a customer’s
premises;
(vi) Allowing JJ Richards to suspend
its services but continue to charge the
customer if payment is not made after
seven days;
(vii) Creating an unlimited indemnity in
favour of JJ Richards;
(viii) Preventing customers from
terminating their contracts if they have
payments outstanding and entitling
JJ Richards to continue charging
customers equipment rental after the
termination of the contract.
The Court held that when read
together as whole in the contract,
all the above terms exacerbated
each other and increased the overall
imbalance between the parties and
held them to be void.
The significance of this decision
highlights the need for parties to
ensure that there are no unfair contract
terms contained in a lease. If a term in
a lease is deemed void, the remainder
of the contract continues to bind the
parties to the extent that it can operate
without the unfair term.
Contact us at JHK Legal. 02 8239 9600 or visit JHKlegal.com.au