Focus on unfair contract terms: Variation and Liability clauses

A court enforceable undertaking has shed new light on Variation and Liability clauses which are not acceptable in standard form contracts with small businesses.

This is an outline of why ACCC was concerned and why Hutchison Ports Australia (HPA) gave an undertaking to the ACCC to remove those clauses – see ACCC Media Release (1 April 2019).

The Clauses

Small business customers enter into a new standard form contract – a Terminal Carrier Access Agreement each time they gain access to Hutchison’s Terminals. The Access Agreement contained Terms and Conditions with these clauses:

The Variation Clause –

HPA may vary these terms and conditions at any time by placing a notice on the HPA portal advising that the terms and conditions have changed. You will be deemed to have accepted and agreed to these … if you continue to use any login or the Truck Appointment System (TAS) area of the Portal after notice of the revised Terms and Conditions has been placed on the Portal …

The Liability Clause –

HPA … will not be liable for any loss (including, without limitation, and indirect, special or consequential loss or loss of profits, loss of business opportunity or loss of goodwill), expense, damage, personal injury or death which is suffered or sustained (whether or not arising from any person’s negligence) in connection with Carriers’ access to and use of the HPA Portal and the HPA Terminal services, except for any liability which cannot be excluded by law (in which case that liability is limited to the minimum allowable by law).

The ACCC’s concerns and Hutchison’s undertaking

The ACCC considered the clauses were unfair contract clauses. This is how the ACCC formed that view and how the undertaking was given, transcribed from the undertaking given:

The ACCC considers that the Variation Clause and the Liability Clause are [unfair because they are] not reasonably necessary to protect Hutchison’s legitimate interests, create a significant imbalance between the rights of Hutchison and the rights of its small business customers and would cause detriment if either were to be applied or relied upon.
The ACCC considers that the Variation Clause and the Liability Clause are unfair contract terms within the meaning of Section 24(1) of the Australian Consumer Law (ACL) … Section 23(1) of the ACL provides that a term of the small business contract is void if the term is unfair and the contract is a standard form contract.
In the light of the ACCC’s concerns, Hutchison acknowledges that the Variation Clause and the Liability Clause … may contravene the small business unfair contract provisions of the ACL.
In the recognition of the concerns raised by the ACCC … Hutchison undertakes that any standard form contracts that relate to the provision of services to small businesses … will not include the Variation Clause and/or the Liability Clause or any clause that has the same effect as the Variation Clause or the Liability Clause (for a minimum of 3 years).
In addition, Hutchison undertook not to enforce such clauses in existing contracts, to publish a corrective notice and to develop, implement and maintain an ACL compliance program.

The s 87B undertaking is available on the ACCC website

Comments

Ever since the ACCC began enforcing the unfair contracts terms law on 12 November 2016, it has targeted three types of problematic terms:

Terms that give one party an unconstrained right to unilaterally vary key aspects of a contract;
Terms that unfairly seek to shift liability from the contract provider to the small business;
Terms that provide unnecessarily broad termination rights.

In this case, the Variation Clause was a type (1) term and the Liability Clause was a type (2) term. Hutchison undertook to remove both clauses rather than face court proceedings that the terms be declared void.

As ACCC Deputy Chair Dr Schaper said “Businesses that rely on these types of terms should be aware that they are leaving themselves open to action by the ACCC or another party” see Media Release 10 November 2016

The ACCC submission to strengthen unfair contract terms powers

The ACCC is dissatisfied with the law as it currently stands because it is limited to achieving the result obtained in Hutchison, that is, that the term be removed by undertaking, or that the term is declared void by court order.

The ACCC has made a submission to the Review of Unfair Contract Term Protections for Small Business (21 December 2018) to the Treasury to strengthen its powers.

The ACCC’s recommendations are:

Principal recommendation: The inclusion of an unfair contract term in a standard form contract should be a contravention of the ACL and be subject to civil pecuniary penalties and other remedial orders commonly available to the court for contravention of the ACL.
Currently, the court cannot impose penalties or make compensation orders for unfair terms and as a result, in the ACCC’s view, no real incentive exists for businesses to exclude unfair contract terms.
Additional recommendation 1: The ACL should be amended to make more flexible remedies available for the court to order when it determines that a term in a standard form contract is unfair.
Currently, all that a court can do is to declare the unfair contract term is void.
Additional recommendation 2: A clearer and more effective threshold for the application of the unfair contract terms regimes would be for it to apply to standard form contracts entered into by businesses with less than $10 million annual turnover.
Currently, the threshold is that at least one party must employ less than 20 and the contract price must be less than $300,000 (if an upfront price) or $1 million (if the term is for more than 12 months).
Additional recommendation 3: The unfair contract terms provisions should be amended to provide better clarity on the concept of ‘an effective opportunity to negotiate’.
Currently, it is unclear if one-off changes negotiated mean that the contract is no longer a standard form.

The Treasury has not completed its consideration of this submission.