Standard form business contracts

On 12 November 2016, section 23 of the Australian Consumer Law (ACL) was amended to provide protection for small businesses from “unfair” contract terms in business-to-business standard form contracts. This came as a result of the ACCC reviewing a number of standard form contracts involving small businesses and identifying a number of commonly-occurring problems in relation to contract providers.

Section 23 of the ACL now applies where:

• at least one party is a small business (that is, they employ less than 20 people on a regular and systematic basis);
• the upfront price payable under the contract is $300,000 or less, or $1 million for a contract for more than 12 months; and
• the contract is for the supply of services or goods or for granting an interest in land.

The ACCC has since conducted an investigation into Sensis Pty Ltd (Sensis) in relation to their automatic contract renewal and cancellation processes.

On 12 May 2017, the ACCC issued a media release stating that during the period from January 2015 to August 2016 (i.e. before the unfair contracts provisions of the ACL came into effect), Sensis was representing to its customers that its Yellow Pages and White Pages online packages and printed bundles had a minimum contract term of 12 months and monthly fees, but failed to disclose to potential customers that on expiry, the bundled packages would automatically be renewed for a further 12 month term, and that if this further term was cancelled after a certain date, the customer would incur a cancellation fee equal to the cost of the remainder of the extended term.

As a result of this investigation, Sensis has acknowledged that they may have contravened sections 18 (misleading and deceptive conduct) and 29 (false or misleading representations about goods or services) of the ACL. The ACCC has accepted an enforceable undertaking from Sensis to:

• refund affected customers;
• ensure that the terms of their automatic contract renewal and cancellation processes are adequately explained to its customers; and
• publish a corrective notice.

Interestingly, although not directly on point in relation to the subject investigation, the ACCC also made a separate comment that it considered that specific clauses in Sensis’ standard contract could be considered “unfair” under the new regime under section 23 of the ACL. These included Sensis’ automatic renewal terms and clauses giving Sensis broad rights to cancel a customer’s contract, including the ability to terminate “without cause”. In response to these stated concerns, Sensis has also agreed to amend the relevant terms in its standard Product Contract.

The ACCC went on to say that it has “serious concerns about the use of wide-ranging termination clauses that allow a business to unilaterally terminate a contract without reasonable cause” and that businesses which continue to use such terms in their standard form contracts with small businesses risk ACCC enforcement action.

This case provides a salutary reminder to businesses using standard form contracts to consider reviewing them for “unfair” terms. The ACCC has stated that ensuring that small businesses receive the protection of the new unfair contract terms laws is an enforcement priority.