By Peter Karcher and Elle Zhang
If you are a supplier (of services or products) or just a hard working business owner, chances are, you have tried to sneak in an automatic renewal clause in your standard terms and conditions (or have, in fact, successfully “evergreen-ed” your standard form contract). Yes, we all know that as a proud business owner, of course you would like to (quietly) lock your client into another 100 years of your excellent service.
But hold on, is it legal? Is it fair?
In this article, we look at the enforceability of automatic renewal clauses, in particular, in light of the unfair contract terms regime and some recent case law in this area.
In November 2016, Australian Consumer Law’s (ACL) unfair contract regime extended the unfair contract consumer protections (previously only available to consumers) to small businesses as well. If you use standard form contracts in business-to-business transactions, then your contract would be subject to the extended unfair contract terms regime if:
It would be a practical starting point to run your standard form contract against the checklist above. If it is likely that your standard form contract may be caught by ACL’s unfair contract terms regime, then potentially any “unfair” terms may be challenged by the Australian Competition and Consumer Commission (ACCC) and found to be void and unenforceable by the Federal Court.
As a guide, these are the types of “unfair” terms that have been challenged by the ACCC:
Have you reviewed your standard form contracts since the introduction of the extended unfair contract regime?
We will look at the automatic renewal clauses in this article, as they have been (in different forms) successfully challenged by the ACCC and found to be unfair by the court in various recent decisions. This is one of the areas that have come under significant scrutiny and constantly been on ACCC’s “alert” radar.
A number of cases have been brought by the ACCC concerning these automatic renewal clauses. Some of the elements in a typical automatic renewal clause that have been found by the court to be unfair include:
In one of the recent cases, the company involved had to make its automatic renewal clause more prominent in the contract and were forced to notify customers of any pending renewal on annual subscriptions. In some other cases, it was found that a similar annual automatic renewal term was unfair and that, when combined with other unfair terms, the contracts were entirely void and unenforceable.
This particularly presents a problem for your business in relation to customers with annual or 6-month subscriptions. If you continue contracting with customers without notifying them before their subscription renews, you may run a risk of having the automatic renewal term in these contracts deemed unfair. If a customer brought a complaint to the ACCC on this ground, it may be possible that you would be forced to amend the relevant terms in all your contracts. It would also potentially allow the court to “pick apart” your contract for any other contentious terms.
To minimise risk (and to avoid all the potential ACCC dramas!), it would be prudent to avoid having one-sided automatic renewal clauses (in particular the ones that do not allow reasonable periods of notice) in your standard form contracts; if you do wish to implement an automatic renewal structure in your contracts, then extra care should be taken and:
We are here to help! Pick up the phone and give us a call if you want to have a quick chat about your standard form contracts. We promise it will be pleasant (and we might even tell a joke or two).
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