By Nav Mesbah
The Australian Securities and Investments Commission (ASIC) has initiated legal action against Paypal Australia Pty Limited (Paypal) claiming that Paypal’s standard form contracts with business account holders contain an unfair contract term.
The contractual term in question provides that PayPal business account holders have 60 days to notify PayPal of any errors or discrepancies in fees that PayPal has charged them, or else accept those fees as accurate. ASIC alleges that this contractual term is unfair “because it allows PayPal to escape the consequences of its own errors in overcharging small businesses, and places additional burdens on small businesses to detect and correct charging errors.” Accordingly, ASIC is seeking to have the term declared void.
This serves as a timely reminder to business owners to review the terms of their standard form contracts to ensure that they do not include unfair contract terms. The key criteria for a contract term to be considered unfair are outlined in the Australian Consumer Law, which is part of the Competition and Consumer Act 2010 (Cth). There are various factors which may determine if a contract provision is unfair but a claim will generally have to satisfy the following criteria:
- Unfairness: The term must be unfair. A term can be considered unfair if it creates a significant imbalance in the parties’ rights and obligations and causes a detriment to one party. Determining unfairness involves considering the contract as a whole and the context in which it was entered into.
- Standard-Form Contract: The contract must be a standard-form contract. These are contracts that are not negotiated between the parties and are offered on a “take it or leave it” basis, with little to no opportunity for the consumer or small business to negotiate the terms.
- Consumer or Small Business Contract: Unfair contract terms provisions apply to contracts where at least one party is a consumer or a small business.
Depending on the type of contract, ASIC or the Australian Competition and Consumer Commission (ACCC) will be responsible for enforcing these provisions, and individuals or small businesses can lodge complaints with ASIC or ACCC (as applicable) if they believe they have been subject to unfair contract terms. Additionally, the courts can make orders declaring a term or terms in a contract to be unfair if the matter is taken to court.
From 9 November 2023, unfair contract terms in standard form contracts with consumers or small businesses will be prohibited and can attract significant penalties.
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