In brief: the ACCC is taking legal action against Fuji Xerox Australia group alleging unfair terms in its standard suite of SME financing contracts, including, lease, rental, CHP and software funding. The targeted clauses are long standing and well recognised. In some instances they have been confirmed in historical court cases. The clauses are found in virtually all equivalent competitor documents. If successful, the ACCC’s case will create much uncertainty and increase costs in the SME credit markets. This will occur at a time when the government is trying to loosen up the provision of credit to small business generally.
The competition regulator, the Australian Competition and Consumer Commission (ACCC ), has launched an action in the Federal Court against the Fuji Xerox Australia group (FXA). The regulator’s case alleges that FXA’s standard form SME finance contracts contain numerous Unfair Contract Terms (UCTs). A total of 173 clauses are being targeted.
The relevant contracts include the typical rental, lease, commercial hire purchase and software financing agreements that nearly all financiers use in various forms in their day-to-day SME credit transactions.
The ACCC wants the following (1) the court to declare that various terms in FXA’s existing standard contracts are unfair and hence of no effect; (2) an injunction barring FXA from relying on the UCTs in its currently outstanding transactions; (3) a prohibition on FXA entering into contracts in the future that contain the deemed UCTs, and (4) an order for a corrective notice (that is, a public admission of ‘guilt’) from FXA, as well the introduction of a compliance programme (presumably for employees) and a costs award.
So, whilst FXA cannot be penalised in monetary terms if its standard form contracts are found to contain one or more UCTs, the ACCC wants to otherwise sanction them as much as possible. Great uncertainty will ensue amongst SME financiers and their customers if the ACCC is successful.
UCT findings on some of FXA’s clauses threaten long standing and well understood principles of equipment finance. For example, in the ACCC’s court statement, under challenge is FXA’s “unilateral” right to calculate an early termination amount, as well as the fact of this amount being based on a discounted sum of unpaid instalments. It is asserted that this calculation is “disproportionate to the loss sustained”. The clear (though unstated) inference is that to be “fair” a payout should reflect the unamortised value of the equipment.
More general consequences could include giving further leverage to problem customers and/or their advisers to argue the effect of contracts, and/or to exit them without being obligated to make a conventional payout. A successful ACCC action will potentially prompt new customers to query the terms, thereby prolonging the sales process and delaying settlements.
The outcome of a successful court case by the ACCC could be legal uncertainty which stifles the provision of credit, at a time when the government is relaxing responsible lending guidelines to free up SME credit availability generally.
Postscript: a few weeks after the ACCC commencing its proceeding against FXA, the government announced that it would introduce legislation enabling courts to impose financial penalties on businesses found to be utilising unfair terms in their standard form contracts. No details were provided. However, the prospect of penalties adds even greater significance to the Federal Court’s eventual decision about alleged unfair terms in the FXA contracts.