ASX-listed Servcorp has settled court action by the consumer watchdog over unfair terms in its small business contracts that shielded the office space provider from liability and gave it unilateral power to terminate agreements with customers.
The Federal Court declared Friday by consent that 12 terms in three standard form contracts used by Servorp Ltd and two subsidiaries were unfair and void.
The contracts were automatically renewed unless a customer opted out, allowed Servcorp to unilaterally terminate agreements and unreasonably protected Servcorp from liability. Among other unfair terms, the contracts also allowed Servcorp to pocket a customer’s security deposit if they did not request it back.
Justice Brigitte Markovic ordered Servcorp to establish a compliance program to ensure future contracts complied with the law, and to pay the Australian Competition and Consumer Commission’s $150,000 in costs. No penalties were issued.
The case was the second by the ACCC to go to court after the Australian Consumer Law was extended in 2016 from consumer contracts to cover small business contracts.
“While all of these three contracts were entered into before the new unfair contract terms regime applied to small business contracts, the court held that regime applied to these contracts when they renewed in November 2016,” Servcorp said in an ASX announcement Friday.
The company added that the ACCC had indicated it would not challenge its current small business contracts.
The Federal Court found in October last year that eight terms in contracts by waste management giant JJ Richards were unfair, in the first ACCC case over small business contract terms to go to court.
“Businesses can no longer impose contract terms that create a significant power imbalance between parties, are not necessary to protect their legitimate interests, and which would cause significant financial detriment to a small business,” ACCC Deputy Chair Mick Keogh said in a statement Friday.
“While penalties do not apply for unfair contract terms, the ACCC will continue to take matters to court to ensure these terms are declared void and protect businesses,” Mr Keogh said.
Servcorp was represented by PricewaterhouseCoopers.
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