It’s time to clean up your waste management agreements

In recent months, we have observed that commercial waste management companies are increasingly using standard form contracts containing unfair terms. Notably, these unfair terms (specifically in waste management agreements) were declared to be unfair in the case of ACCC v JJ Richards [2017] FCA 1224.

Despite this legal precedent and the terms having been deemed unfair, we continue to see similar, and in some cases identical, clauses in recently reviewed commercial waste management agreements.

Our latest Corporate & Commercial alert highlights the ongoing use of terms in such agreements that have been declared unfair. It serves as a timely reminder for businesses to remain vigilant when entering into or negotiating waste management agreements, and offers practical guidance to help identify and address potentially unfair contract terms.

What are unfair contract terms and when do they apply?

The Australian Consumer Law (ACL), found in Schedule 2 to the Competition and Consumer Act 2010 (Cth), prohibits ‘unfair’ contract terms in consumer contracts or small business contracts under section 23 of the ACL.

Consumer contracts are standard form contracts for the supply of goods or services to individuals wholly or predominantly for personal, domestic or household use or consumption. Consumer contracts are unlikely to apply to businesses who use commercial waste management agreements, as these agreements are used by business for commercial purposes.

A commercial waste management agreement is more likely a ‘small business contract’, if the standard form contract is for the supply of goods or services and at least one party:

• is a business which employs less than 100 people; or
• has an annual turnover of less than AU$10 million.

Under section 24 of the ACL, a term in a standard form consumer or small business contract will be ‘unfair’ if:

• it causes a significant imbalance between the parties’ rights and obligations under the contract;
• it is not reasonably necessary to protect the legitimate interests of the party which is advantaged by the term; and
• it causes financial or other detriment to a party if the term is relied upon.

ACCC v JJ Richards

In 2017, the Australian Competition and Consumer Commission (ACCC) brought a case against JJ Richards & Sons (JJ Richards), a large privately owned waste management services company in Australia. The ACCC case sent warnings to JJ Richards that its pro forma terms and conditions were in breach of the ACL on the basis that the terms were unfair. Once notified, JJ Richards responded and agreed with the ACCC, signing a declaration agreeing that many terms of the pro forma were unfair terms and agreed:

• not to rely on the unfair terms;
• not to use the pro forma with the unfair terms for 5 years;
• to issue a notice of the unfair terms on the JJ Richard’s website;
• to notify small businesses who entered the pro forma; and
• to maintain and implement the ACL compliance program to minimise JJ Richards future use of unfair terms.

Terms found to be unfair

The following is an outline of the JJ Richards’ terms that were declared by the Court and accepted by JJ Richards as unfair and which we notice keep appearing in commercial waste management agreements. While the reasons these terms are unfair are specific to commercial waste management agreements, similar clauses may also appear in other industry consumer contracts or small business contracts.

The unfair clauses in JJ Richards were:

Automatic renewal ― The waste contract automatically rolled over and triggered a new term if the customer did not opt-out of the renewal within 30 days. This was considered to be an unfair term because the automatic renewal coupled with the limited time to opt-out did not give customers enough time to terminate the contract, nor the opportunity to change to a new waste management supplier before the new term commenced.

Price variation ― JJ Richards was able to unilaterally change the price for its services. This meant customers could be charged higher prices with no opportunity to negotiate or receive a benefit from the increased price.

Agreed times ― If for any reason JJ Richards was prevented from removing waste at agreed times, even if the customer was not responsible for the prevention, JJ Richards had no liability. This was considered to be unfair to customers as they would have to pay for a service they were not provided, even if they had no fault in preventing the service from occurring.

No credit without notification ― If for any reason JJ Richards was unable to perform its services and collect waste for any reason, even if the customer was not responsible for JJ Richards inability to perform the service, JJ Richards had no liability. This was considered to be unfair as the customer could still be charged for unperformed services for anything, including if JJ Richards equipment was faulty.

Exclusivity ― All waste services provided to the customer were exclusively provided by for JJ Richards and any additional services the customer required must be obtained from JJ Richards. This was considered to be unfair because it prevented customers from seeking additional services for possibly better or lower prices from other waste service providers. Customers were locked into JJ Richards services and prices.

Credit terms ― This clause allowed JJ Richards to suspend services when clients failed to pay, and charge the client for the services incurred for overdue payment including interest, administration, legal and equipment capital return fees. These requirements were not inherently unfair, but it was considered to be unfair because the customer did not have corresponding rights against JJ Richards, such as withholding payment if JJ Richards failed to provide services.

Indemnity ― Indemnities are not inherently unfair, however in this case there was an unlimited indemnity in JJ Richards favour, even where JJ Richard’s loss was not the customers fault. Again, this was considered to be unfair as there was no corresponding indemnity that benefited the customer.

Termination ― The clause prevented customers from terminating their contracts with JJ Richards if they had outstanding payments and in addition JJ Richards could charge customers for equipment rental after the termination of the contract, even though the customer would not be obtaining any service. This considered to be unfair because there was no corresponding right for the customer’s ability to terminate the contract. Due to the automatic renewal clause, customers were locked in without prior notice and in a loop unable to exit the contract, and JJ Richards could recover the outstanding payments through ordinary legal recovery processes.

Consequences of unfair terms

The consequences for businesses or individuals who use unfair contract terms include:

• financial penalties;
• unfair terms becoming unenforceable; and
• injunctions.

When the ACCC brings a case, it may apply to the Court for the offending business or individual to:

• perform a service related to the conduct for the community or section of the community;
• participate in a compliance program;
• participate in an education and training program for employees;
• revise the business’ internal operations that led to the use of unfair terms;
• disclose the use of the unfair terms to those who had possession or access to them; and
• publish an advertisement about the unfair term as determined by the Court.

Contact us

If you believe that unfair terms are present in consumer contracts or small business contracts you are currently a party to, or intend to enter into, we recommend having these contracts reviewed. For any questions regarding waste management contracts or unfair contract terms more broadly, please contact a member of our Corporate & Commercial team.