Unfair Contract Terms

by Katrina Brown | Sep 25, 2013 | Commercial Law, Consumer Protection

On 30 July 2013, the ACCC issued a media release advising that it has been granted a declaration by the Federal Court that the standard terms and conditions used by Bytecard Pty Limited, an Internet Service Provider, contains terms which fall within the unfair contract terms provisions of the Australian Consumer Law.

This is the first declaration that the ACCC has received under the unfair contract terms provisions (as a sole course of action), and serves as a reminder to businesses the importance of ensuring compliance with the legislation.

What are unfair contract terms?

The Australian Consumer Law (the ACL), located in Schedule 2 of the Competition and Consumer Act 2010 contains in Part 2-3 the provisions relative to unfair contract terms.

Section 23 is the operative provision, and provides that “a term of a consumer contract is void if: (a) the term is unfair; and (b) the contract is a standard form contract.” A consumer contract is defined in Section 23(3) as a contract for “(a) a supply of goods or services; (b) a sale or grant of an interest in land; to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.”

Section 24 provides the meaning of the term “unfair”, and provides that a term is unfair where:

1. The term would result in an imbalance in the rights and obligations of the parties relative to the consumer contract;
2. The term is not reasonably necessary to protect the legitimate interests of the advantaged party (note that there is a presumption in Section 24(4) that such a term is not reasonably necessary until the party advantaged by the term proves otherwise); and
3. The term would cause detriment to a party to the contract if the term was exercised or relied upon by a party to the contract.

However, these are not the only guidelines that must be taken into account when considering whether a term is “unfair”. The ACCC, under Section 24, is also required to take into account the transparency of the term, and must consider the contract as a whole. A term is considered to be transparent where it is expressed in plain language, it is legible and presented clearly, and the term is readily accessible to any party to the contract that would be affected by the operation of the term.

What is a standard form contract?

The unfair contract terms provisions are applicable to contracts that are “consumer contracts”, but also fall within the definition of “standard form contracts”. It is a common business practice to offer each consumer a standard contract which contains the same terms. This is efficient where businesses, such as mobile phone retailers, are entering into large numbers of contracts with their customers.

Section 27 of the ACL contains some guidelines for determining whether a contract could be considered to be a standard form contract:

1. If one of the parties has most or all of the bargaining power in relation to the contract;
2. If the contract was prepared and presented by one party to the other without any negotiation or discussion between the parties;
3. If one party was required either to accept or reject the terms, of the contract (meaning that there was no ability to negotiate terms);
4. If one party was given no opportunity to negotiate terms of the contract; or
5. If the contract failed to take into account the specific needs or characteristics of one of the parties, or the transaction itself.

It is worth noting that Section 26 of the ACL provides that a term dealing with the main subject matter of the contract, or that sets the price payable, or is a term required by statute cannot be considered an unfair contract term.

Examples of unfair terms

Section 25 of the ACL provides some examples of terms that could be contained in standard form contracts and be deemed unfair:

1. A term that allows one party to the contract, to the exclusion of the other, to avoid or limit their obligations to perform in accordance with the terms of the contract;
2. A term that allows one party, to the exclusion of the other, to unilaterally terminate the contract;
3. A term that places a penalty on one party, to the exclusion of the other, where that party commits a breach or terminates the contract;
4. A term that allows one party, to the exclusion of the other, to unilaterally vary the terms of the contract;
5. A term that allows one party, to the exclusion of the other, to decide to renew or not renew the contract;
6. A term that allows one party, to the exclusion of the other, to vary the prices payable under the contract, without allowing the opportunity to the other party to terminate the contract for such variation;
7. A term, where the contract is for goods, services or land, that allows one party, to the exclusion of the other, to vary the nature or characteristics of the goods, services or land to be supplied without allowing the opportunity to the other party to terminate the contract for such variation;
8. A term that allows one party, to the exclusion of the other, to determine whether a breach of the contract has occurred, or to determine the interpretation of terms of the contract;
9. A term that limits the vicarious liability for the agents of one of the parties;

10. A term that limits one party from exercising its right to sue another party to the contract;

11. A term that attempts to limit the evidence that one party can put forward in the event that legal proceedings are brought in relation to the contract; or

12. A term of the kind prescribed by the regulations.

The Bytecard Case

In the Bytecard matter, the relevant unfair contract terms were as follows:

Section 1.7: NetSpeed reserves the right to change prices or services at any time without prior notice to customers or the public, except when the service is an Australian Broadband Guarantee Service. Price changes will not be retroactive for existing prepaid customers. It is the User’s responsibility to check this online.

This Section 1.7 would appear to be akin to that of Example 6 above, in that it allows Bytecard (also known as NetSpeed), to vary the price payable under the contract by the consumer, but offers no right to terminate and requires no notice to the consumer.

Section 4.1: The User agrees to indemnify and hold NetSpeed, its affiliates, its licensers, its contractors or their respective employees harmless against any and all liability, loss claim, judgment or damage. This indemnity includes, but is not limited to an indemnity against all actions, claims and demands (including the cost of defending or settling any actions, claim or demand) which may be instituted against us, as well as all expenses, penalties or fines (including those imposed by any regulatory body or under statute).

Section 4.2: The User agrees to indemnify NetSpeed for any expenses including, but not limited to:

1.  Attorney’s fees and cost of litigation;
2. Its licensers;
3. Its contractors or their respective employees as the result of any and all use of User’s account whether authorised or not authorised or as a result of the negligence;
4. Wilful misconduct;
5. Breach of any of the terms of this Agreement by User, (including but not limited to claims, liabilities, losses, damages, judgments and costs); or
6. Disruption to User’s telephone services during the installation of an ADSL Service.

Sections 4.1 and 4.2 placed an obligation on the consumer to indemnify Bytecard against any loss incurred, regardless of whether there was a breach of contract, or whether such loss had been caused by the breach, negligence or any other wrongful act of the consumer, and extends even to an indemnity against any loss that may be caused due to the fault of Bytecard. It is important to note that this term was not reciprocated to the benefit of the consumer.

Section 6.5: With the exception of obligations under the Broadband Guarantee Program, NetSpeed reserves the right to terminate any account at any time with or without cause or reason. In the event that NetSpeed would choose to take this action the User understands and agrees that the Users (sic) only compensation would be a prorated refund for the current period that User has already paid.

This Section is akin to that of Example 2 above, in that it grants the right to Bytecard to terminate the contract at any time and for any reason whatsoever, without granting the same rights to the consumer.

What if my standard form contracts contain unfair contract terms?

This action by the ACCC serves as a warning to businesses that the ACCC intends fully to enforce the unfair contract term provisions of the ACL. If you believe that your contracts may be in breach of these provisions, we strongly encourage you to obtain legal advice relative to your agreements.

Nautilus Law Group is able to assist you with advice on all compliance matters relative to the Australian Consumer Law. We welcome you to contact our offices on (07) 5574 3560 or email info@nautiluslaw.com.au. We thank you for considering Nautilus Law Group.