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:
- The term would result in an imbalance in the rights and obligations of the parties relative to the consumer contract;
- 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
- 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:
- If one of the parties has most or all of the bargaining power in relation to the contract;
- If the contract was prepared and presented by one party to the other without any negotiation or discussion between the parties;
- If one party was required either to accept or reject the terms, of the contract (meaning that there was no ability to negotiate terms);
- If one party was given no opportunity to negotiate terms of the contract; or
- 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:
- 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;
- A term that allows one party, to the exclusion of the other, to unilaterally terminate the contract;
- 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;
- A term that allows one party, to the exclusion of the other, to unilaterally vary the terms of the contract;
- A term that allows one party, to the exclusion of the other, to decide to renew or not renew the contract;
- 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;
- 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;
- 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;
- 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:
- Attorney’s fees and cost of litigation;
- Its licensers;
- 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;
- Wilful misconduct;
- Breach of any of the terms of this Agreement by User, (including but not limited to claims, liabilities, losses, damages, judgments and costs); or
- 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 email@example.com. We thank you for considering Nautilus Law Group.
What? I can’t have a Final Sale – No Refunds Policy? We understand business – we understand that when you make a sale, you want that sale to go to revenue. Unfortunately, the Australian Consumer Law (ACL) does not allow you unilaterally decide the sale is a done deal. In particular, as this Article discusses, you must give your customer the right to a refund. If you refuse that right, the ACL cuts into your revenue line with penalties.
A quick briefer on the Australian Consumer Law (before we discuss refunds and penalties):
The Australian Consumer Law (ACL) is contained within Schedule 2 of the Competition and Consumer Act 2010 (Cth). The ACL contains provisions that aim to provide protection to consumers when purchasing goods and services.
These provisions contain rights of consumers, and obligations of businesses, that are implicit in every contract entered into by a consumer to purchase goods from a supplier. Consumer guarantees include, but are not limited to:
- the goods will be sold with clear title (with no undisclosed securities);
- the goods or services are fit for their intended purpose, or any other purpose identified by the consumer to the seller prior to purchasing the goods;
- the goods will match any sample or demonstration model shown;
- the services will be rendered with due care and skill; and
- the services will be performed within a reasonable time (where no time limit is specified).
If a good or a service fails to meet any of the consumer guarantees, a consumer is provided rights against the seller through the ACL. Depending on the nature of the failure, the consumer has varying remedies against the supplier.
If the failure is classified as a ‘minor failure’, the supplier has the option of choosing between providing the consumer with a repair of the goods, or offering a replacement or a refund. At this level it is the option of the supplier as to which avenue to take, however they are obligated to remedy the failure.
If the failure is a ‘major failure’ the consumer can decide to reject the goods or services and choose a refund or replacement, or ask for the supplier to provide compensation for any loss in value of the goods or services as a result of the failure.
A discussion of the “refund” obligations of a supplier:
Signs in stores or on websites (for online shopping) that state that a business does not offer refunds, or signs that attempt to limit a consumer’s right to redress in circumstances where goods or services fail to comply with a consumer guarantee are unlawful.
Suppliers of goods or services are prohibited from attempting to exclude the applicability of consumer guarantees to avoid obligations under the ACL. Consumers should be aware that their rights exist regardless of the signs or advertisements displayed by the supplier. However, signs that disallow refunds for ‘change of mind’ are lawful as they do not attempt to avoid consumer obligations.
A discussion of the “extended warranties” sold by a supplier:
It is also unlawful for a business to attempt to sell a consumer an extended warranty that provides a consumer with rights that are provided under the ACL. In other words, a consumer cannot attempt to sell a consumer rights that they are already afforded by legislation.
Extended warranties are optional only, and should provide rights above and beyond those already provided by the guarantees under the ACL.
What if I give it a go? What are the penalties imposed by the ACL:
Penalties for providing false or misleading information (i.e. representing to a consumer that they are unable to seek a refund for goods in any circumstance) can be up to $1.1 million for a company or $220,000 for an individual. There are also potential criminal penalties available.
Making an effort to comply with the ACL with regards to refunds not only ensures that your business will not be exposed to penalties for providing false and misleading information, but increases consumer confidence in your business and its practices. Having refund information readily available (such as on your website), and displaying ACL compliant signs at the point of sale, ensures that you are not misleading consumers (even unintentionally) about their rights in regards to consumer guarantees over goods and services.
How do you ensure compliance with the ACL in your business dealings?
We recommend taking steps to ensure compliance with the ACL, and to further ensure that consumers will not be misled into believing that they do not have rights under legislation aimed to protect consumers.
We encourage the implementation of a Refund Policy, which provides restrictions on when a consumer can receive a refund, but also makes them aware of their rights pursuant to the ACL. Having the consumer’s rights, and your obligations, openly available to consumers not only increases their confidence in your business but reduces the chance that a consumer will misunderstand their rights pursuant to the ACL for return of defective products.
Further, it is advisable to have a sign displayed at the point of sale (usually the cash register) that alters consumers to their rights under the consumer guarantees. Such as sign is not compulsory but is recommended for good practice
If you have questions or concerns about your obligations under the ACL, Nautilus Law Group can provide you with advice as to how to develop policies and procedures to ensure compliance with the consumer protection legislation. We welcome you to contact our offices on (07) 5574 3560 or email firstname.lastname@example.org. We thank you for considering Nautilus Law Group.
Submitted by: Katrina E. Brown BA JD ATIA TEP SSA