August 26, 2013

ACCC Strikes against Unfair Contract Terms

ACCC v ByteCard Pty Ltd

In the first legal proceedings based only on the new unfair contract terms provisions of the Australian Consumer Law (ACL), the Federal Court has declared clauses in a standard form consumer contract void.

WHAT ARE UNFAIR CONTRACT TERMS?

The ACL, which came into effect in July 2010, contains provisions that allow a court to determine a term of a standard form consumer contract to be unfair, and therefore void.

A ‘consumer contract’ is a contract for the supply of goods and services, or the sale or grant of an interest in land, to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.

For a consumer contract to meet the ‘standard form’ requirement, the contract will typically be prepared by only one party to the contract, and offered on a take it or leave it basis with no negotiation between the parties as to the terms.

CASE BACKGROUND

ByteCard Pty Ltd (ByteCard) (which runs the ISP, NetSpeed Internet Communications), used general terms and conditions for all of its services. These terms and conditions were published on its website as standard form consumer contracts.

In April 2013, the ACCC commenced proceedings against ByteCard, alleging that a number of clauses in the ByteCard standard form consumer contracts were unfair.

THE UNFAIR TERMS:

  1. gave ByteCard a right to vary price unilaterally – without giving the customer prior notice, an opportunity to negotiate, or a right to terminate;
  2. required the consumer to indemnify ByteCard – even where the consumer had not acted wrongfully and the loss may have been caused by ByteCard;
  3. gave ByteCard the right to terminate unilaterally at any time – without reason and without compensating the consumer (save for pro-rata refunds for prepaid periods); and
  4. prevented the consumer from terminating the contract unless the consumer gave certain notice, had paid all accounts and, in some cases, paid a cancellation fee or paid for the minimum contract period.

DECISION

The Federal Court decided that the terms were unfair because:

  1. they created a significant imbalance in the parties’ rights and obligations;
  2. they were not reasonably necessary to protect ByteCard’s legitimate interests;
  3. they would cause detriment to a consumer (financial detriment and possibly loss of service or their email account); and
  4. in relation to the indemnity given by the consumer, there was no corresponding indemnity given by ByteCard.

ACCC REPORT: Unfair Contract Terms Industry Review Outcomes

On 15 March 2013, the ACCC released a report titled Unfair Contract Terms Industry Review Outcomes (the Report) which identified a wide variety of problematic terms in standard form consumer contracts, including terms that:

  1. allow the business to change the contract without consent from the consumer;
  2. cause confusion about the agency arrangements that apply and that seek to unfairly absolve the agent from liability;
  3. unfairly restrict the consumer’s rights to terminate the contract;
  4. suspend or terminate the services being provided to the consumer under the contract;
  5. make the consumer liable for things that would ordinarily be outside of their control;
  6. prevent the consumer from relying on representations made by the business or its agents;
  7. seek to limit consumer guarantee rights; and
  8. remove a consumer’s credit card chargeback rights when buying the service through an agent.

For all Entities

The Report (and subsequent decision of the Federal Court in ByteCard) sounds as a warning for businesses and entities using standard form consumer contracts to review the terms in the standard form contracts they have in place.

Please contact Rouse Lawyers if you would like us to review your standard form consumer contract/s, or require assistance to ensure you are not exposed to prosecution under the new unfair contract terms provisions of the ACL.