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Servcorp’s Contract Terms Declared to be Unfair

Tuesday, July 31, 2018



Servcorp’s Contract Terms Declared to be Unfair


In a recent decision by the Federal Court, 12 standard form contract terms used by Servcorp and its subsidiaries were declared unfair and struck out. The ACCC used its authority under Australian Consumer Law (“ACL”) to commence proceedings last year as part of its crackdown on unfair terms in business-to-business contracts.



The ACCC is able to challenge potentially unfair terms in contracts created or varied on or after 12 November 2016. Contract terms are likely to be considered unfair if they create a significant power imbalance between the parties; are not necessary to protect the party’s legitimate interests; and are likely to cause significant financial (or other) detriment to the other party.



In this case, the terms declared unfair included an automatic renewal clause in which Servcorp could not only renew, but could increase the contract price, unless the customer opted out by a certain date. Additionally, clauses that allowed Servcorp to unilaterally terminate the contract and unreasonably limit their liability were similarly declared unfair.



Businesses cannot be penalised for unfair contract terms; however, any unfair terms are invalid from the beginning of the contract. The contract is able to remain on foot to the extent that it can operate without the void terms. Following the court’s determination, Servcorp has created an unfair contract terms compliance program and agreed to pay the ACCC’s costs.



This most recent example of the ACCC’s focus on unfair unilateral contract terms serves as a timely reminder to businesses to ensure that your standard form terms meet the ACL’s guidelines, and to seek advice on any contract terms drafted by another business before agreeing to them.