Case note: Servcorp’s small business contract terms declared unfair

In Australian Competition and Consumer Commission v Servcorp Limited [2018] FCA 1044 the Federal Court declared by consent that 12 terms in standard form contracts used for small business customers by two Servcorp Ltd subsidiaries (Servcorp Parramatta Pty Ltd and Servcorp Melbourne 18 Pty Ltd) were unfair and therefore void.

The terms declared unfair include those that had the effect of:

  • automatically renewing a customer’s contract, unless the customer had opted out, and allowing Servcorp to then unilaterally increase the contract price;
  • permitting Servcorp to unilaterally terminate contracts;
  • unreasonably limiting Servcorp’s liability or imposing unreasonable liability on the customer; and
  • permitting Servcorp to keep a customer’s security deposit if a customer failed to request its return.

Servcorp will be unable to enforce these terms in its standard form contracts entered into on or after 12 November 2016 (when the unfair contracts law commenced) or if contracts were entered into before that date, if they were renewed after 12 November 2016.

Section 23(1) of the Australian Consumer Law provides that a term of a small business contract is void if the term is unfair and the contract is a standard form contract.

The Court declared that each of the terms were unfair because they:
(a) would cause a significant imbalance in the parties’ rights and obligations arising under the contracts;

(b) are not reasonably necessary in order to protect the legitimate interests of Servcorp Melbourne and Servcorp Parramatta; and

(c) would cause detriment (whether financial or otherwise) to the small business counterparties if they were to be applied or relied on by Servcorp Melbourne or Servcorp Parramatta.

The Court ordered that, by consent, Servcorp Parramatta and Servcorp Melbourne at their own expense:
(a) establish and implement a program which has the purpose of ensuring compliance with Part 2-3 of the Australian Consumer Law; and

(b) procure that Servcorp Administration Pty Ltd, including any relevant employees and agents, participate in and administer the Compliance Program.

Servcorp Parramatta and Servcorp Melbourne were ordered to pay the ACCC’s costs of $150,000.

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