Fuji in hot water over unfair contract terms

In response to complaints from small businesses, the ACCC has instituted proceedings in the Federal Court of New South Wales against Fuji Xeros Australia Pty Ltd and a related company (collectively Fuji) claiming that Fuji’s standard form contracts contained up to 173 unfair terms.

In this article we recap on the unfair contract regime that applies to business to business transactions (B2B UCT Regime) and highlight those type of clauses in Fuji’s contracts that were characterised as unfair by the ACCC.

B2B UCT Regime

The consumer unfair contract terms regime is set out in the Australian Consumer Law (ACL) (and in the Australian Securities and Investments Commission Act 2001 (ASIC Act) with respect to contracts for financial products and services) and has been in effect since 1 July 2010.

The regime was extended to cover “standard form”, “small business contracts” entered into, renewed or varied on or after 12 November 2016 (B2B UCT regime) where:

1. The contract is for a supply of goods or services, or a sale or grant of an interest in land;
2. At the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
3. Either of the following applies:
   1. the upfront price payable under the contract does not exceed $300,000; or
   2. the contract has a term of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.¹

Allegations made against Fuji

The ACCC alleged that since at least October 2018 Fuji used nine types of standard form small business contracts for the provision of printing goods and associated services that contained 173 unfair terms. Set out below is a selection of some of the categories of unfair terms raised by the ACCC:

• Unilateral variation terms – where Fuji could unilaterally vary the prices paid by its customers and unilaterally vary the terms of those contracts which altered existing or created new rights and obligations between the parties;
• Automatic renewal terms – which provided for automatic renewal of the term of the contract unless the customer provided notice to cancel the contract a certain number of days before the end of the current contract term;
• Liability limitation terms – which limited the liability of Fuji to the customer or which required the customer to indemnify Fuji, even in circumstances where Fuji or their agent or contractor caused or contributed to the loss or damage;
• Disproportionate termination terms – which allowed Fuji to suspend or terminate the contract for minor breaches by a customer with no corresponding right or a more limited right for the customer;
• Termination payment terms – which allowed Fuji to impose or retain charges on termination of the contract by Fuji;
• Unfair payment terms – which arose irrespective of whether Fuji provided the goods or services the subject of the obligation. This type of term was considered unfair because it required customers to pay for equipment or services that they did not, or may not, receive; and
• Non-reciprocal rights and obligations – which granted a specific right to Fuji but not the customer (for example, Fuji was excused from its performance obligations in the case of a force majeure event but the customer had no such right. In other cases the customer only had a limited right, compared to a broader right held by Fuji – for example, the customer was not permitted to assign or transfer the contract or any benefit or right under the contract without Fuji’s prior written consent but Fuji could assign the contract without notice or consent).

In accordance with the legislative framework under the ACL², the ACCC argues that each of the above terms is an unfair contract term because it:

1. causes a significant imbalance in Fuji’s rights and obligations;
2. goes beyond what is reasonably necessary to protect the legitimate interests Fuji; and /or
3. would cause a financial or other detriment to Fuji’s customer if relied on by Fuji.³

Orders sought by the ACCC

The ACCC is seeking declarations that the terms are unfair and therefore void, an injunction to prevent Fuji from relying on these terms in its current contracts or entering into future contracts that contain those terms, an order for a corrective notice, a compliance program and costs.

ACCC Deputy Chair Mick Keogh said, “This court action by the ACCC should prompt all other traders in the printing support industry to review their standard form contracts and make any necessary changes to remove unfair contract terms.”⁴

Potential repercussions

We have commented in a previous article (click here to view) that at the present time it is not illegal to include potentially unfair contract terms in a contract. A term may be challenged in a court and if found to be unfair, declared void, but the inclusion of the term of itself is not subject to a civil penalty by ASIC unless a business continues to use an unfair term after it has been declared void.⁵

Despite this, it can be very costly both to a business’s reputation and its bottom line to be involved in an ACCC proceeding, particularly where fair business practices are at the core of the allegations. As also noted in our previous article, the government has indicated that it believes that the B2B UCT regime should be strengthened and expanded.

To this end, the Department of Treasury published a Consultation Regulation Impact Statement regarding enhancements to the B2B UCT regime on 13 December 2019.⁶ A wide range of stakeholders were invited to make submissions regarding potential policy responses to issues that were identified in the Australian Government’s 2018 review of the B2B UCT regime. Treasury received close to 80 submissions before submissions closed on 27 March 2020. These submissions are still being considered at the time of writing this article.

Take-aways

It is vital that businesses regularly review their standard form contracts and remove or amend potentially unfair terms that cannot be justified as being reasonably necessary to protect a legitimate interest of the business. As the ACCC’s recent stance against Fuji demonstrates, businesses are potentially taking a costly gamble if they elect to retain potentially unfair terms in their standard form contracts, on the assumption that the risk of regulatory action or a challenge by their counterparty is low.

Please contact us if you would like us to assist you with a UCT compliance review of your standard form contracts.

This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate and Peter Callil, Graduate.

¹ Section 23, Schedule 2 Competition and Consumer Act 2010 (Cth) (ACL); Section 12BF, Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
² Part 2-3, ACL.
³ Section 24(1) ACL.
⁴ ‘Fuji Xerox in court over alleged unfair contract terms‘ (22 October 2020), Media Release, Australian Competition & Consumer Commission
⁵ Section 250 ACL.
⁶ Enhancements to Unfair Contract Term Protections Consultation Regulation Impact Statement (December 2019)