Servcorp slapped with ACCC action over unfair small business contract terms

The Australian Competition and Consumer Commission (ACCC) watchdog instituted proceedings on 15 September 2017 against Servcorp and two of its subsidiaries over alleged unfair terms, including automatically renewing contracts and allowing Servcorp to unilaterally increase the contract price after renewal and without prior notice.

Unfair contract terms

A term of a small business contract is ‘unfair’ if:

(a)    It would cause significant imbalance in the parties’ rights and obligations arising under the contract; and

(b)    It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c)     It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Servcorp supplies serviced office space and virtual office services, such as office suites, secretarial services, IT, communications and personal assistants to its clients, many of which are Australian small businesses.

The listed company recorded a net profit of $40.7 million last financial year and operates at 25 locations around Australia, holding just under 20 per cent of the serviced office space market.

The ACCC alleges terms permitting Servcorp to unilaterally terminate contracts and impose penalty-type consequences on customers and terms that permit Servcorp to unilaterally acquire a customer’s property without any notice are unfair.

ACCC deputy chair Michael Schaper told Fairfax Media the watchdog received a number of complaints from small businesses about Servcorp’s contracts.

“The automatic renewals and the ability to raise prices can actually work together to really hit a business,” he said.

“Businesses should ensure that potentially problematic terms are only as broad as reasonably necessary to protect their legitimate interests.”

ACCC looking at similar cases

Mr Schaper said all large businesses that issued standard-form contracts should be taking steps to ensure that they were compliant with the new laws.

“We have a team looking at a number of other cases,” he said. “I think there is a sizeable sector of the SME community that is not fully aware of this. Small businesses should come to us if they think they are in an unfair contract.”

​The business to business unfair contract laws apply to standard-form small business contracts entered into or renewed on or after November 12, 2016.

The automatic renewals and the ability to raise prices can actually work together to really hit a business.

Michael Schaper

The ACCC’s action against Servcorp is the second proceedings it has begun,  with the watchdog instituting proceedings against waste management firm JJ Richards & Sons earlier this month.

The ACCC is seeking declarations that the clauses in Servcorp’s contracts are unfair and void, injunctions, publication orders, compliance program orders and costs.

Servcorp disappointed

In an announcement to the Australian Securities Exchange on Friday, Servcorp company secretary Greg Pearce said the business had co-operated with the ACCC and attempted to engage in a constructive dialogue with the watchdog.

“SRV is disappointed that the ACCC has decided to commence legal proceedings against it,” he said. “SRV maintains that its serviced office agreements are negotiable contracts and do not constitute standard-form contracts regulated by the unfair contract terms regime under the Australian Consumer Law.”

Mr Pearce said Servcorp has a significant number of agreements with former and existing clients that demonstrated this.

“In its 39 years of existence, Servcorp’s agreements with its clients have never been challenged by any government authority as to their fairness or legitimacy, SRV currently operates in over 60 jurisdictions globally,” he said.

Servcorp executive director Taine Moufarrige told Fairfax Media that Servcorp has instructed its lawyers, PWC, to defend the proceedings.

_{Source: Sydney Morning Herald}