Pursuant to the Australian Consumer Law (ACL), unfair contract terms in consumer and small business contracts will be void and not enforceable. While section 25 of the ACL provides examples of what may be considered to be unfair contract terms, it is up to the Courts to provide guidance on what is and isn’t unfair, as the contract as a whole must be taken into account when evaluating the fairness of individual terms.
The recent case of ACCC v Servcorp  FCA 1044 provides guidance on what may be considered unfair in terms of a commercial service contract. Servcorp provides virtual office services at many locations across Australia. It was argued by the ACC, and held by the Court, that the following clauses contained in Servcorp’s services contracts were unfair:
- if either party did not give notice to terminate the services contract, then the services contract would continue from the expiry date for the duration of the original term at a service fee as determined solely by Servcorp. This clause was seen to be unfair as the client would be locked into the new agreement for the full term of the initial contract and it allowed Servcorp to unilaterally vary fees payable under the contract without providing the other party a right to terminate at the commencement of the new term.
- further to the ability granted to Servcorp to unilaterally vary fees at the commencement of a new term, Servcorp’s contracts also provided that Servcorp could unilaterally vary charges payable under the service contracts at any time, without having to give notice and also without any obligation to act fairly or reasonably.
- Servcorp’s clients agreed to not make any claim against Servcorp’s landlord under the relevant headlease. The limitation on a client’s right to sue another party was held to create a substantial imbalance in the parties’ rights and obligations.
- The services contract would terminate immediately if a client was found to be in any breach of the terms of the relevant headlease. This clause allowed Servcorp to terminate the agreement even where the breach was not material and in circumstances where the client may not be aware of the breach or been given a chance to remedy the breach.
- Under the contracts, Servcorp was not liable to its clients for any theft, loss, or damage occuring during the client’s occupation. Servcorp also accepted no liability in relation to loss, damage or alternation of any data, except in circumstance of gross negligence or wilful misconduct only. The services contract did not contain any limitation of a client’s liability to Servcorp.
- Under the termination clause. a notice terminating the services contract was only deemed to have been served on Servcorp if a confirmation of termination letter was received by the client from Servcorp. This clause was considered unfair as it allowed Servcorp to determine whether the client had validly exercised their right to terminate. Further, Servcorp had the right to terminate the services contract at any time on 1 month’s written notice without cause or reason, with no similar right given to Servcorp’s clients.
- if the clients did not request a refund of their security deposit within 360 days of termination, they would forfeit their security deposit. There was no positive obligation on Servcorp to return the security deposit or to notify their clients that their deposit had been forfeited.
- Last, if a client was found to persuade another of Servcorp’s clients to switch to a competitor of Servcorp, that client was required to pay a US$15,000 penalty to Servcorp, irrespective of any damage suffered by Servcorp.
This case provides a valuable insight into what clauses may be considered unfair by the Court. While this case concerned a service contract, the principles discussed may also apply to similar clauses found in other types of commercial contracts, such as leases.