“No Refunds” Clauses Unfair

Businesses must take care to ensure that standard form contracts, such as terms and conditions or terms of trade, are not considered ‘unfair’ pursuant to the Australian Consumer Law (ACL).

The case of Ferme v Kimberley Discovery Cruises Pty Ltd involved a cruise ship operator and a category 4 tropical cyclone.

Shortly before the cruise was to depart, the cyclone struck and the operator was forced to cancel. It then attempted to enforce the following term in its standard form contract to avoid refunding the affected passengers:

The carrier will endeavour to follow the Cruise itinerary as described in the brochure and the passenger accepts that the carrier has the right to vary the itinerary or cancel the Cruise if the carrier considers that this is necessary as a result of some Unexpected Event or prevailing inclement weather conditions and the passenger accepts that the passenger will not be entitled to any compensation or a refund of the dare paid should this occur except as provided for in these terms and conditions.

Fortunately for the passengers, they were able to claim for the cancellation under their travel insurance. The insurers then exercised their right to recover against the cruise ship operator and brought an action on the passengers’ behalf.

The insurers argued that the clause refusing the refund was unfair, and relied upon the ACL. The ACL provides that a term in a standard form consumer contract is unfair if:

1. it would cause a significant imbalance in the parties’ rights and obligations arising under a contract;
2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
3. it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

The insurer was successful in its claim against the cruise operator, establishing that there was a standard form consumer contract and the terms were unfair.

Takeaway

This case highlights the need to take particular care in preparing standard form contracts. This is especially important where amounts paid under a contract are to be forfeited before the contract, or a substantial part of it, is performed. In these cases, a business must be able to prove that the forfeiture is justified.

It also emphasises the need for consumers to scrutinise the fine print of standard form contracts, and to be aware of their rights under the ACL.

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