ACCC v Servcorp
Servcorp, a public listed entity, supplies serviced office spaces and virtual office services such as, office suites, secretarial services, IT and communications, to clients occupying office suites in numerous locations around Australia.
A few of the customers of Servcorp Parramatta and Servcorp Melbourne complained to the Australian Competition and Consumer Commission (ACCC) that some terms of their contracts with Servcorp were “unfair” within the meaning of section 24 of the Australian Consumer Law (ACL) and therefore unenforceable. The ACCC sought a declaration from the Federal Court (in the case of Australian Competition and Consumer Commission v Servcorp Limited  FCA 1044).
Court’s Finding and Court Order
The Court found against Servcorp and held that the provisions are therefore void by operation of section 23 of the ACL.
The Court ordered by consent that Servcorp implement a program to ensure compliance with relevant provisions of the ACL and procure that Servcorp Administration Pty Ltd, including any relevant employees and agents, participate in and administer the compliance program. Servcorp was ordered to pay the ACCC's costs of and incidental to the Court proceeding fixed in the amount of $150,000.
The Court’s judgement sets out a useful analysis of the relevant legislation and case law. Our article here summarises the relevant provisions of the legislation.
Some points of interest from the Servcorp case are set out below.
Renewed after 12 November 2016
Even though the contracts were entered into prior to the commencement of the unfair contract terms regime as applicable to small business contracts which became operational on 12 November 2016, they were renewed after 12 November 2016 and therefore the regime applied to the contracts.
The Servcorp base terms were prepared prior to any discussions between the parties and Servcorp presented the terms of the contracts without inviting the counterparty to negotiate the terms, other than the terms defining the main subject matter of the contract (i.e. the length of the contract term, the location of the office space and the upfront price payable).
In summary, the allegedly unfair terms (Impugned Terms) included the following:
Terms provided that there was an automatic renewal of the contract for another term equal to the initial term at a service fee determined by Servcorp in its absolute direction and notified by it to the client - either party serves a written notice (before a specified date) ending the contract.
A term that provided that Servcorp would not be held responsible for loss, theft or damage of the good howsoever caused. Regarding this term, the Court stated as follows:“The clause could be relied upon by Servcorp Parramatta or Servcorp Melbourne in circumstances where that company had caused the “loss, theft of damage”.
A term that the client would not make any claim in tort, contract or otherwise against Servcorp’s landlord under the headlease.Regarding this term, the Court noted as follows:“There is no clause in each of the Service Contracts which imposes any reciprocal limitation on the Servcorp Parramatta or Servcorp Melbourne or the landlord who are free to sue the counterparty”.
A term that gave Servcorp the right to change, review or vary the services charges unilaterally.There was no obligation for Servcorp to provide the counterparty with any notice, and there was no limitation on the face of the clause requiring Servcorp to act fairly or reasonably in any decision to change the pricing of the services or indeed consult with the counterparty.
A term to the effect that a written notice from the client would not be deemed received by Servcorp unless a confirmation letter is received by the client in return.
A term that “As governed by the Headlease, Servcorp may terminate this Service Agreement by giving on month’s written notice to the client at any time”.
A terms that permits Servcorp to immediately terminate the agreement if the counterparty fails to comply with all Acts, Legislation, Regulations and bylaws as required by the headlease and comply with any regulations or procedures issued or required by the landlord under the headlease.The Court noted that by virtue of this term Servcorp could terminate the agreement in circumstances where any asserted breach may not be a material breach, the counterparty may not have been notified of, or aware of, the breach or given an opportunity to remedy the breach, or the counterparty may have already remedied the breach.
A term that Servcorp may terminate the service agreement by giving one month’s written notice to the client at any time. The Court noted as follows: “That right can be exercised without cause or reason and without giving compensation to the counterparty. The period of one month is not determined by reference to the length of the relevant Service Contract. In contrast, the counterparty has very limited termination rights under each of the Service Contracts and does not have a corresponding right of termination which can be exercised without cause or reason on one month’s written notice”.
A term that if the client fails to demand the refund of the security deposit within 360 days after the date of termination of the service agreement, the security deposit shall be deemed forfeited to Servcorp absolutely.
A term that Servcorp (including its employees and agents), with the exception of gross negligence or wilful misconduct, shall accept no liability whatsoever with respect to theft or loss from the office(s) or damage to the office(s) that occurs during the client’s occupation of the office(s).
A term that Servcorp (including its employees and agents), with the exception of gross negligence or wilful misconduct, shall accept no liability whatsoever with respect to the loss, damage or alternation of any data due to failure or defect of the hardware, software, internet, voicemail or communications system/s that occurs during the client’s term of the service agreement.
A term that the client shall expressly indemnify Servcorp against any loss, damage, corruption of data or any loss of information whether from hardware, software, internet, voice or communication system failure that may occur to the client during the term of the service agreement.
A term that in the event of a material breach of clause 21a by the client, the client shall promptly pay to Servcorp an amount of US$15,000 as a penalty and that payment of the penalty shall not preclude Servcorp demanding further payment for damages.
Servcorp did not seek to rebut the presumption that the Impugned Terms are not reasonably necessary to protect its legitimate interests. In other words, Servcorp accepted that they were not reasonably necessary.
Servcorp did not dispute that each of the Impugned Terms created a significant imbalance in the parties’ rights and obligations arising under the service contracts and would cause detriment if they were applied or relied on by Servcorp.
Servcorp did not dispute that the Impugned Terms are unfair terms within the meaning of s 24(1) of the ACL and void by reason of s 23(1) of the ACL.
For further information regarding unfair contract terms legislation, see our articles here and here.
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