In April of this year, the authors of this article published an article discussing how automatic renewal clauses are increasingly vulnerable under the Australian Consumer Law and the recent actions the ACCC had taken against businesses which had automatic renewal clauses in their standard form contracts. To recap, an automatic renewal clause provides for a contract to automatically renew after the initial term ends, without further notice to the customer. Unless a customer remembers to opt out of the renewal within the timeframe set in the contract, the customer can find itself unwittingly bound by an additional term of the contract.
In that article, we noted that the ACCC had instituted proceedings in the Federal Court against office services provider Servcorp Ltd and two of its subsidiaries (Servcorp), alleging that certain terms in three of Servcorp’s standard form, small business contracts were unfair under the B2B unfair contract terms regime.
The consumer unfair contract terms regime set out in the Australian Consumer Law1 (and in the Australian Securities and Investments Commission Act 2001 with respect to contracts for financial products and services) has been in effect since 1 July 2010. From 12 November 2016 (Commencement Date), the regime was extended to cover “standard form contracts” involving “small businesses”, as defined in the legislation.
On 13 July 2018, the Federal Court declared, by consent, that 12 terms in the contracts in question were indeed unfair and therefore void, including terms that had the effect of:
- Automatically renewing a customer’s contract, unless the customer had opted out, and allowing Servcorp to then unilaterally increase the contract price;
- Permitting Servcorp to unilaterally terminate contracts;
- Unreasonably limiting Servcorp’s liability or imposing unreasonable liability on the customer; and
- Permitting Servcorp to keep a customer’s security deposit if a customer failed to request its return.
Not only is Servcorp unable to enforce these terms in its standard form contracts entered into on or after the Commencement Date of the B2B unfair contract terms regime, it has consented to undertaking a compliance program and paying $150,000 towards the ACCC’s costs.
Interestingly, in an ASX announcement dated 7 December 2017, Servcorp had stated that the three individual contracts referred to in the ACCC’s action were negotiated before the B2B unfair contract terms regime commenced, indicating that Servcorp planned to argue that the contracts were not subject to the regime. In Servcorp’s ASX announcement dated 13 July 2018, Servcorp confirmed the Court’s finding that while the contracts were entered into before the Commencement Date of the regime, they were renewed after the Commencement Date and therefore the regime applied.
This is the second successful court action by the ACCC enforcing the B2B unfair contract terms regime. The first successful action was in respect of a waste management provider’s standard form service agreement.
The finalisation of proceedings against Servcorp is likely to prompt other office services providers to voluntarily amend their standard form contracts and may also cause customers of these businesses to re-assess whether their existing standard form contracts contain unfair terms. Businesses that remain complacent about the use of potentially unfair terms in their standard form contracts should take note of the undesirable consequences that could flow from such complacency.
At the time of preparing this client alert, the Federal Court judgment has not been published. HWL Ebsworth Lawyers will prepare a further client alert analysing the judgment once it is available.
This article was written by Teresa Torcasio, Partner and Marian Ngo, Senior Associate.
1 Schedule 2 of the Competition and Consumer Act 2010 (Cth)
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