CN07 - Fujifilms contract terms declared unfair by Australian Federal Court

The Federal Court has declared as unfair nearly 300 contract terms used by Fujifilm Business Innovation Australia and/or Fujifilm Leasing Australia ("Fujifilm") in 21 standard form contracts entered with thousands of small businesses.  Fujifilm will no longer be able to rely on those existing terms, nor use them in future.

Key takeaways

• The Australian Consumer Law empowers the Federal Court to declare as unfair, contract terms used in certain consumer and small business standard form contracts, in order to prevent businesses from relying on them and continuing to enforce them.
• Fujifilm entered into or renewed 34,000 contracts containing nearly 300 terms which were declared unfair by the Federal Court. The Court also ordered injunctions, corrective notices and communication orders and the implementation of a compliance programme.
• Compliance with these orders is likely to involve a significant practical burden on Fujifilm – it must contact all of the contracted customers to determine which of the still current contracts from the 34,000 it entered are standard form contracts with small businesses to which the unfair contract terms regime applies.
• A Bill is expected to be introduced into Parliament proposing amendments to the unfair contract terms regime to, among other things, introduce new prohibitions which would make the use of unfair contract terms illegal and attract significant penalties for contravention.

Australia's unfair contract terms regime

The Australian Consumer Law protects consumers and small businesses against unfair terms in standard form contracts for goods or services, where the value of the contract is no more than AUD 300,000 (or AUD 1 million for contracts longer than 12 months).  A small business is a business employing fewer than 20 persons at the time of entering the standard form contract.

A contract term is considered unfair if:

• it would cause a significant imbalance in the parties' rights and obligations;
• it is not reasonably necessary in order to protect the legitimate business interests of the advantaged party; and
• it would cause financial or other detriment to a party if it were relied on.

A court has the power to declare a term unfair, which renders the term void and unenforceable.  The contract continues to bind the parties to the extent possible without the unfair term.

Fujifilm's conduct

Between November 2016 and December 2021, Fujifilm used 21 standard form contract templates to contract with customers for the supply of printers and related software on a lease basis.  34,000 contracts were entered into or renewed using these standard form contract templates, of which the ACCC believe a substantial proportion would have been with small businesses.

The ACCC alleged that the following types of terms in Fujifilm's contracts were unfair (in sum, the instances of these terms across the 21 templates totalled nearly 300):

• Automatic renewal: allowing Fujifilm to renew the contract unless customers cancelled within a certain number of days before the end of the contract (even though Fujifilm had no obligation to notify the customer of the impending renewal);
• Limitation of liability: limiting Fujifilm’s liability or requiring customers to indemnify Fujifilm without corresponding rights for those customers. In particular, Fujifilm was excused for delays in delivering printers, its total liability was capped and liability for consequential losses were excluded. Customers were required to indemnify Fujifilm for all costs and expenses it incurred in exercising its rights under the contract, as well as indemnify Fujifilm for damage to the equipment caused by third parties, or accidentally or indirectly by Fujifilm. Fujifilm also limited its liability for any pre-contractual representations;
• Termination: allowing Fujifilm to terminate the contract in materially broader circumstances than its customers, allowing Fujifilm to suspend its provision of services where the customer breached any contractual term, while requiring the customer to continue paying, and enabling Fujifilm to terminate the contract immediately if the customer breached any contractual term;
• Termination payment: requiring customers to pay significant early termination fees in cases where Fujifilm exercised a right to terminate, including charges unilaterally set by Fujifilm;
• Payment terms: requiring customers to pay Fujifilm for software licensed irrespective of whether Fujifilm delivered the software and to pay the purchase price for goods prior to delivery; and
• Variation: permitting Fujifilm to unilaterally vary certain terms of the contract, including prices and terms contained in documents other than the signed contract (those documents were incorporated into the contract by reference, and may have been difficult for customers to locate in some circumstances).

Outcome of the case

Fujifilm admitted that these types of terms in its standard form contract templates were unfair and consented to the following declarations and orders being made by the Federal Court:

• Declarations that each of the types of terms identified above were unfair either by themselves or read in conjunction with other clauses;
• Injunctions preventing Fujifilm from relying on any small business contract clauses that were declared unfair;
• Corrective notice and communications orders requiring Fujifilm to:
  • publish information about the Court orders on its website in order to reach affected customers; and
  • contact current customers with relevant contracts and ascertain if they are small businesses and make them aware of the orders – effectively, Fujifilm must conduct the exercise of contacting the counterparties to any of 34,000 relevant contracts that remain in effect and determine if the counterparties had less than 20 employees at the time of entering the contract. Fujifilm can request evidence from the counterparties for this purpose;

• Compliance program orders requiring Fujifilm to implement a compliance program in order to reduce the risk of any future use of or reliance on unfair contract terms; and
• Costs orders requiring Fujifilm to contribute $250,000 to the ACCC’s costs.

Unfair contract terms reform

Under the current regime, the use of unfair contract terms attracts various remedies but does not attract pecuniary penalties.  

The Government has announced the introduction of a new Bill to Parliament between September and December 2022, amending the unfair contract terms regime.  Although the detail in the Bill is yet to be announced, it is expected that  these amendments will be substantially the same as or similar to the Bill introduced into Parliament in February 2022, which lapsed due to the change in Government in May 2022.  Most notably, the proposed changes would introduce new prohibitions against the use of unfair contract terms – making them illegal and attracting significant penalties if contravened (see our March 2022 newsletter).

Businesses should continue to follow the passage of the proposed reforms through Parliament and prioritise reviewing their standard form contracts with consumers and small businesses for possible unfair contract terms.

With thanks to Matthew Harper and Alicia Gormly of Ashurst for their contributions.