As the Small Business and Unfair Contract Terms Act will commence on 12 November 2016 it is timely to review three recent examples of unfair contract terms under the ASIC Act and the Australian Consumer Law (“ACL”).

Currently terms in standard form contracts for consumers are void if they are found to be unfair by a court. The unfair contract terms provisions in the ASIC Act and the ACL do not include penalties.

The changes mean that the unfair contract provisions will also apply to standard form contracts where at least one of the parties is a small business which employs less than 20 people, and where the upfront price of the contract does not exceed $300,000 (or $1 million for contracts longer than 12 months). Background.

Section 12BG of the ASIC Act (which is identical to section 24 of the Australian Consumer Law) defines “unfair” for consumer contracts for financial products or financial services.

Meaning of unfair
(1) A term of a consumer contract referred to in subsection 12BF(1) is unfair if:

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

(2) In determining whether a term of a consumer contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:

(b) the extent to which the term is transparent;

(c) the contract as a whole.

(3) A term is transparent if the term is:

(a) expressed in reasonably plain language; and

(b) legible; and

(c) presented clearly; and

(d) readily available to any party affected by the term.

(4) For the purposes of paragraph (1)(b), a term of a consumer contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.

Europcar rental agreement

In Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377 the Federal Court decided that certain clauses of the Europcar Rental Agreement were unfair terms within the meaning of section 12BG of the ASIC Act, and were therefore void pursuant to section 12BF(1) of the ASIC Act.

The terms purported to allow Europcar to impose, in a way which is unfair, no fault liability on the customer and to make the customer’s liability unlimited in cases of breach of contract, no matter how trivial or removed from the loss suffered by Europcar.

Justice Gilmour noted that “It is important to understand…that it was not the mere fact that the terms imposed no fault liability but rather the way those terms operated in this particular case which rendered them unfair.”

As a threshhold issue Justice Gilmour determined that the Europcar rental contract is a financial product and that the unfair contract term provisions of the ASIC act applied, rather than the ACL.

He said the Europcar rental contract was a financial product as it was a credit facility which included:
“a contract, arrangement or understanding for the hire, lease or rental of goods or services, other than a contract, arrangement or understanding under which:
(A) full payment is made before or when the goods or services are provided; and
(B) for the hire, lease or rental of goods—an amount at least equal to the value of the goods is paid as a deposit in relation to the return of the goods….”

In this case, the ACCC received a formal delegation of powers from ASIC to enforce the ASIC Act.

He concluded that:

“unlimited liability was imposed on the customer in any case of breach, however trivial or unrelated to the loss suffered by Europcar. There is no comparable term which imposes such liability on Europcar for breach. This, I find, is a significant imbalance in the parties’ rights and obligations arising under the contract. ..

The parties have thus agreed, correctly in my opinion, that each of these “breach” terms caused a significant imbalance in the parties’ rights and obligations arising under the Car Rental Contracts because each of the terms had the effect that if a consumer breached the Car Rental Contract he or she would be liable to Europcar in respect of:

the full amount of damage during the period of rental to the vehicle that the Consumer has rented or, if the vehicle was lost, the full amount of the loss, including in all applicable cases loss of use of the vehicle; or

(a) any claim against Europcar by a third party arising out of the use of the rented vehicle during the period of rental
irrespective of:
(b) how trivial the breach may have been;
(c) the extent to which the breach caused or contributed to the relevant damage or loss;
(d) whether the breach has been remedied; or
(e) whether the Consumer has purchased and paid for any Cover Product.”

A penalty of $100,000 was also imposed upon Europcar for misleading representations

Chrisco Hampers

In ACCC v Chrisco Hampers Australia Ltd [2015] FCA 1204 the Federal Court found that Chrisco included an unfair contract term in its 2014 lay-by agreements relating to its “HeadStart Plan”, which allowed Chrisco to continue to take payments by direct debit after the consumer had fully paid for their lay-by order and declared the provision void. Consumers were required to “opt out” in order to avoid having further payments automatically deducted by Chrisco after their lay-by had been paid for.

Justice Edelman made some useful observations about the application of section 24 of the ACL:

“it suffices to say that the sums of money lost by Chrisco’s withdrawals from the consumer’s account, without any obligation upon Chrisco to pay interest and with no discount for the consumer who subsequently chose to place an order, involved a significant detriment to the consumer. That detriment was not balanced by any substantial corresponding right that the consumer obtained against Chrisco.

By itself, it is not necessarily determinative that there is no substantial right to a consumer, or duty upon Chrisco, that corresponds with the consumer’s obligations under the HeadStart term. The evaluative exercise involves consideration of the contract as a whole to determine whether there is a significant imbalance in the parties’ rights and obligations arising under the contract….

I do not consider that the HeadStart term in the catalogue or on the website was wholly lacking in any transparency. The matters I have described above show that the term was not hidden, and that the option to opt out of the clause was in a place where it might be noticed.

However, there are matters concerning the HeadStart term that reduce its transparency.

First, the language of the HeadStart term is not plain…

Secondly, the HeadStart term could have been presented in a manner which was far more legible, much clearer, and more readily available to the consumer. The font size of the HeadStart term was very small. It was less than half of the size of the main heading “About your payments”. There was nothing about this term that drew it to the consumer’s attention beyond any of the 20 other paragraphs on the same page.

Another difficulty with the legibility, clarity and availability of the HeadStart term is that although the HeadStart term and the opt-out provision were opposite each other in the four pages of the catalogue there was no reference in either to the other. The opt-out box to be ticked did not refer to the HeadStart term on the previous page nor did it explain what was involved in the HeadStart Plan. And the HeadStart term on the previous page did not refer to the possibility of opting out.

A further difficulty with the legibility, clarity and availability of the HeadStart term is that the provision that the “HeadStart Plan is fully refundable” is not contained in the terms and conditions in the catalogue at all.

Instead, this term is contained in the opt-out box on the form which would be sent to Chrisco. Unless the consumer made a copy of the order form, the consumer who consulted the terms and conditions would not be aware that the HeadStart Plan is fully refundable. ”

The Court separately found that Chrisco also made a false or misleading representation under section 29(1)(m) of the ACL that customers could not cancel a lay-by agreement after making their final payment and imposed a penalty of $200,000. The ACL provides that consumers have the right to terminate a lay-by agreement at any time before delivery of the goods.

Exetel

The ACCC announced that Telecommunications company Exetel has agreed to compensate consumers affected by changes made to its fixed term residential broadband plans, after concerns were raised by the Australian Competition and Consumer Commission.

In mid-2015, Exetel wrote to more than 2,000 residential broadband customers on 12-month fixed term plans, informing them that they were required to either change their broadband plan or terminate their Exetel service without penalty.

Exetel relied on a clause in its standard residential broadband agreement which provided that Exetel could vary any part of that agreement for any reason.

Following an investigation, the ACCC considered that the clause was an unfair contract term which was likely to contravene the Australian Consumer Law (ACL). The ACCC also considered that Exetel’s advertising of these fixed term plans was likely to be misleading because it represented that consumers would receive the service for the 12-month fixed term, when this was not necessarily the case.

Exetel cooperated with the ACCC’s investigation and, in response to the ACCC’s concerns, agreed to:

• remove the clause from its residential broadband standard form of agreement;
• refund any additional monthly subscription costs incurred for the remainder of the fixed term by customers who changed to a new plan; and
• refund any activation charge previously paid by customers who terminated their Exetel service rather than change to a new plan.