Introduction

On 12 August 2022 the Federal Court of Australia delivered its judgment in the Australian Competition and Consumer Commission’s (ACCC) proceedings against Fujifilm Business Innovation Australia Pty Ltd and Fujifilm Leasing Australia Ltd (together, Fuji). The Court found many terms in Fuji’s standard form contracts (SFCs) were unfair and so void and unenforceable. This significant ruling reflects Australia’s toughening approach to unfair contract terms (UCT). The judgment is handed down against the backdrop of imminent reform of the UCT laws. The newly elected Australian Labour Government is expected to re-introduce proposed legislation which had lapsed when the federal election was called. The laws are expected to codify even stricter regulation of dealings by SFCs with individual consumers and small business customers. These reforms are expected to grant the courts new powers to impose civil penalties for UCT contraventions to minimise the harm arising from power imbalances in contractual dealings. However, the legal regime looks set to materially increase business risk and uncertainty. Lawyer, Nicholas Cousins, and Partner, Robyn Chatwood, explain the impact of the Fujifilm case and the road ahead.

Background facts of the Fujifilm case

The background facts of the case are that Australia’s competition regulator, the ACCC, brought proceedings against Fuji in October 2020 claiming a number of their standard form contracts used primarily in Fuji’s sale, leases or licences of office equipment (and supply of associated support services) contained unfair contract terms within the meaning of section 24 of the Australian Consumer Law (ACL) under Schedule 2 of the federal Competition and Consumer Act 2010 (Cth) or section 12BG of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act).

In October 2021 the parties were ordered to mediation where a statement of facts and consent orders were agreed to and those were ultimately accepted by the Federal Court.

Which terms did the Court find were unfair contract terms?

The Court found that in eleven of Fuji’s small business contracts which were standard form contracts¹ entered into or renewed by Fuji between November 2016 and December 2021, there were 38 unfair contract terms. Around 34,000 times, Fuji had entered or renewed those SFCs but it was unknown how many involved small business customers as Fuji had not asked its customers about their business size.

The Federal Court, citing the Australian Energy Regulator v Energy Australia Pty Ltd [2022] FCA 644 case², found the terms in Fuji’s SFCs to be unfair when considering the whole of each contract in which they appeared rather than examining the particular term in isolation. The Court accepted that the UCTs were those that: ³

• allowed Fuji to unilaterally vary the price charged to the customers or the rights and obligations between Fuji and the customers;
• provided for automatic renewal of the contract (unless the customer gave prior notice to cancel) in circumstances where there was no obligation on Fuji to prior notify the customer that the renewal was imminent and would occur;
• incorporated additional contractual terms by reference to one or more extraneous documents, and those documents were difficult for the customer to locate or identify, and were also documents where Fuji could unilaterally vary them without notice;
• limited Fuji’s liability for any delay in supplying or delivering equipment to the customer in circumstances where the customer had no recourse to be excused from charges payable for the period of delay;
• provided that the customer must pay Fuji all costs and expenses that Fuji incurred in exercising its rights under the contract on a full indemnity basis, in circumstances where there was no corresponding right on the part of the customer and no requirement on Fuji to minimise its costs;
• included a warranty by the customer that the customer had read each document forming part of the contract, including extraneous documents that Fuji may not have provided, and entered into the contract solely on the contents of the contract (thereby purporting to exclude any liability on the part of Fuji for pre-contractual representations);
• provided significant reductions or limits on Fuji’s liability to the customer and excluded claims for consequential loss in circumstances where the customer’s liability had no limit; and
• required the customer to indemnify Fuji for loss or damage to the products, including all associated costs, with exclusions only for limited wear and tear and anything directly attributable to Fuji’s negligence – so requiring the customer to indemnify Fuji for damage caused by third parties, or accidentally or indirectly by Fuji.

What were the consequences of Fuji including unfair contract terms in its standard form contracts?

For its contraventions of the Australian UCT laws, the Court orders:

1. restrained Fuji from relying on any small business contract clauses found to be UCTs and from entering into any further small business contracts using the identified SFCs containing the UCTs;
2. required Fuji publish a corrective notice on its websites and send communications to each counterparty for the impugned contracts telling them that certain terms have been declared void and unenforceable;
3. required Fuji to implement a compliance program within 90 days to be undertaken by Fuji employees involved in offering, drafting, negotiating and enforcing contracts for the next 3 years, and
4. required Fuji to pay AUD$250,000 towards the ACCC’s costs.

Australia’s likely reform of the UCT legislation

The Federal Court’s judgment is handed down against the backdrop of imminent reform to Australia’s UCT regime.

• Under the current regime, the ACL and ASIC Act does not prohibit businesses from including unfair contract terms in agreements with individual consumers or small businesses, although, as occurred in the Fuji case, such terms can be declared void and unenforceable.
• Under new legislation (expected to be introduced this year in the upcoming federal parliamentary sitting), the proposal, use or reliance on UCTs in applicable SFCs is set to be illegal with civil penalties for breach of up to AUD$500,000 for individuals and, for corporations, for amounts calculated as the greater of AUD$10 million, three times the value of the benefit derived from the contravention, and 10% of the offending company’s annual turnover.
• The proposed changes to the UCT regime are expected to be substantially similar to those reflected in the draft legislation included in the Treasury Laws Amendment (Enhancing Tax Integrity and Supporting Business Investment) Bill 2022 (Cth) tabled in February this year (but which lapsed in April 2022 due to Australia’s federal election) (Amendment Bill).

Other proposed changes reflected in the Amendment Bill and which are likely to be included in any new proposed legislation include:

• broadening the scope of businesses covered by SFC protections from the current threshold of 20 employees to include additional protection for medium-sized businesses employing up to 99 people or which have an annual turnover of less than AUD$10 million (with some exceptions);
• allowing courts to make orders applying to existing consumer or small business SFCs that contain substantially similar terms to a SFC which a court has declared to contain an UCT (regardless of the fact that the SFC has not been put before the court);
• clarifying the meaning of SFC, including that a court may find a contract to be a SFC even in circumstances where a party has had the chance to negotiate certain terms (if those terms are minor, insignificant or selected from a range of options offered by the counter-party) or in circumstances where a party is given the opportunity to negotiate the terms of a separate or proposed contract; and
• excluding certain SFCs from the regime, including contracts made in compliance of the operating rules of licensed financial markets, or contracts for clearing and settlement facilities which establish, contain or incorporate rules governing the operation of a payment or settlement system approved by the RBA, and certain contracts for replacement and renewed life insurance.

Impact

In the wake of the Fuji case and given the likelihood of the introduction of new UCT legislation, businesses should be aware of the significantly increased risk in contracting through SFCs and expect harsher regulator scrutiny of their use of them in dealings with individual consumer and small business customers.

A businesses’ arsenal of SFCs should be reviewed for compliance and assessments should be made as to the overall effect of terms in conjunction with one another and not only when analysed in isolation. Businesses must also seek out relevant information from customers to determine their size and to identify when dealing with small businesses within the meaning of the ACL and ASIC Act (included when and if amended), so that contractual negotiations and SFCs can be tailored accordingly.

Next Steps

We will keep you updated on legislative developments to Australia’s UCT regime. In the meantime, if your business needs assistance reviewing its SFCs or advice in relation to UCTs, please contact Partners Robyn Chatwood, Donald Robertson, Vanessa Gore, or your usual Dentons contact.

1. As defined within section 23(4) of the ACL and section 12BF(4) of the ASIC Act to mean:

• contracts for the supply of goods or services, or a sale or grant of an interest in land; and
• at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
• either of the following applies:
  • the upfront price payable under the contract does not exceed AUD$300,000;
  • the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed AUD$1,000,000.

2. Which was a case whereby the Federal Court on 1 June 2022 ordered EnergyAustralia to pay a pecuniary penalty totalling AUD$12 million for failing to comply with its obligations under national energy retail law, including primarily by failing to register life support customers with energy distributors.

3. Australian Competition and Consumer Commission v FujiFilm Business Innovation Australia Pty Ltd. [2022] FCA 928 Stewart J [6].