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ACCC prosecutions in relation to unfair contracts – Consumer Trading & Unfair Trading


Key Takeaways for business owners

  • The expanding unfair contracts provisions within the Australian
    Consumer Law are now clearly being enforced by the ACCC – and in
    the appropriate cases, the ACCC is commencing prosecutions.

  • Businesses relying on standard contract and franchise agreements must be careful when
    drafting their contracts, in order to account for the terms of the
    franchising law and the ACL.

  • Businesses must also bring a robust position to deal with any
    claims by the ACCC or consumers, business consumers, and the
    franchisees, when dealing with the disputes.

Introduction

The Federal Court has recently delivered several decisions which
must give corporations engaged in retail and financial services
some pause for thought – especially in relation to their
preparation of standard contract terms and conditions.

This article discusses two recent matters:

The first decision analyses the far-reaching powers within the
Australian Consumer Law to prohibit and strike down unfair
contracts. The second decision relates to the banning of
unconscionable conduct in respect of franchise operations.

Unfair contracts legislation

Over the last five years, the Competition and Consumer Act 2010
(‘CCA’), and the Australian Consumer Law (‘ACL’) has
been progressively amended in order to:

  1. expand the basis upon which a consumer or small business
    contract might be struck down for unfairness; and

  2. increase the penalties applicable to entities where their
    contracts contravene these provisions.

There is legislation currently before the Parliament to increase
the penalties up to $50m for Corporations (see the Treasury Laws Amendment (Competition and
Consumer Reforms No. 1) Bill 2022: More competition, better
prices
Exposure Draft
).

Unfair contracts provisions in the ACL


Part 2-3 of the ACL
provides that if a contract is a standard
form contract, and a term in the contract is unfair, then that term
is void. This applies to both consumer contracts and small business
contracts.

A consumer contract is one for the
supply of goods or services, for personal domestic or household
use. A small business contract
is one for the supply of goods or services to a business that
employs fewer than 20 persons, and where the upfront price does not
exceed $300,000 – or if over a longer duration, the amount payable
in any 12 month period does not exceed $1,000,000. This will cover
many small businesses.

An unfair term is one that would lead
to a significant imbalance in the parties’ rights or
obligations, where the term is not necessary to protect the
interests of the person seeking to rely on it, and where it would
cause detriment to the other party if it were relied upon.

This of course applies to standard form contracts only, and is
dependant on whether the term is
transparent.

ACCC v. Fuji

On 12 August 2022 in the Federal Court of Australia matter of Australian Competition and Consumer Commission
v Fuji Film & Business Innovation Australia Pty Ltd
(2022)
FCA928
(‘ACCC v. Fuji‘), Stewart J imposed
orders and penalties on an equipment provider (Fuji) with respect
to its standard terms and conditions entered into with businesses
and consumers.

This case related to the supply of office equipment such as
printers and photocopiers by way of sale, lease or licence.

The Australian Competition & Consumer
Commission
(‘ACCC’) alleged that around 34,000 separate
contracts entered into between Fuji and its small business
customers were unfair within the meaning of
s.24 of the ACL
, or pursuant to the terms of the Australian Securities and Investments
Commission Act
2001
.

The Judgment and orders were given by consent following a
mediation between Fuji and the ACCC. The nature of the unfairness
was described in the Judgment and included unfair terms which could
not be negotiated between the parties, and included terms in
favour of Fuji such as:

  1. allowing unilateral variation by Fuji of the price
    charged;

  2. providing for automatic renewal of the contract, unless notice
    was given by the customer within a certain period of time;

  3. additional contractual terms incorporated by reference to
    extraneous documents, which were not easily accessible by the
    customer;

  4. limitation of Fuji’s liability for any delay in supplying
    equipment;

  5. obligation on the customer to pay all costs Fuji incurs in
    exercising its rights, including legal costs on a full indemnity
    basis where there was no corresponding right for the consumer;

  6. a warranty given by the customer that they had read all the
    various material, including those documents and clauses
    incorporated by reference to extraneous documents;

  7. significant caps and reduction of Fuji’s liability and
    removal of liability for consequential loss;

  8. indemnification of Fuji for loss and damage, even subject to
    exclusions for wear and tear and Fuji’s own negligence;

  9. an entitlement of Fuji to suspend provision of services but
    still require the customer to pay for those services which are
    suspended;

  10. rights of Fuji to terminate the contract immediately without
    any corresponding right for the customer;

  11. obligation for balloon payments by the customer when terminated
    by Fuji;

  12. obligation at the end of the minimum term of the contract to
    either return the equipment or pay any shortfall;

  13. provisions in respect to the return of the documents
    irrevocably binding the consumer, but Fuji is not bound until it
    indicates it has adequate stock; and

  14. a right to Fuji to invoice even if goods have not yet been
    provided.

Comment on ACCC v. Fuji

The decision in ACCC v. Fuji was by consent, and there
was no disputation or contested judicial determination as to the
meaning and effect of the relevant provisions, and their
unfairness.

The settlement was reached for the purpose of concluding the
prosecution by ACCC of Fuji.

There was no detailed analysis of those individual 34,000
contracts, or the circumstances of each individual consumer and
small business.

With this in mind, businesses must be mindful of these
provisions
.

The ACL provides a basis for consumers and small businesses to
seek to set aside contracts which they otherwise seek to exit,
without paying for the goods and services provided.

This prosecution also indicates a desire by the ACCC to actively
enforce these provisions. Any business relying on bulk, standard
form contracts should carefully analyse their terms and seek advice
before finalising.

Franchising code breach

On 9 August 2022, Justice Katzmann delivered a separation
interlocutory case management decision in the matter of Australian Competition and Consumer Commission
v Retail Food Group Ltd
(2022) FCA 961
. Orders were made
to progress claims by ACCC against franchisors concerning the way
they implement franchise agreements which allegedly contain
unconscionable terms.

The court considered that the case could be heard by sample
(i.e. by looking at a few example clauses), rather than trawling
through every single franchise agreement.

The ACCC alleged that franchisors had breached both the Australian Consumer Law and the Franchising Code of Conduct in the way that
they had reached agreements with franchisees, and the way they
managed the franchise arrangements.

In particular, it is alleged that there was improper use of
combined marketing funds, as well as a failure to
disclose where those funds were drawn from, and for what purposes
they were used.

In the application, the ACCC sought an order that the facts of
each of 47 individual franchises should be determined. The
defendant franchisor sought that this be limited to an analysis of
sample cases only.

Her Honour agreed with the submissions of the respondents and
considered that the best way to deal with the multiple disputes was
to hear the claim by representative sample, rather than engage in
analysis of each individual transaction. The purpose of this was to
promote the overarching purpose of the Civil Practice and Procedure Provisions and to
reduce inefficiencies and contain costs.

Australian Competition and Consumer Commission
v Retail Food Group Ltd
(2022) FCA 961
represents a basis
upon which a robust response to allegations and claims by the ACCC
can be brought by franchisors to manage disputed claims, to
minimise costs, without having to endure expensive time consuming
and unnecessary litigation.

Of course, whether the ACCC succeeds is yet to be seen.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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