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15 May 2013 ACCC takes first enforcement action under "unfair contract" laws in the Australian Consumer Law

By Commercial and IP & Technology Team


 

In Brief- Don't be caught in the ACCC's crosshairs

The Australian Competition and Consumer Commission (ACCC) has started to take enforcement action against standard form consumer contract terms that it considers to be unfair and unenforceable.

 

National laws proscribing unfair contract terms, included in the Australian Consumer Law (ACL), came into effect on 1 July 2010.

Since then, and until recently, the ACCC, in its role of consumer protection enforcement, has not taken any public action, or otherwise shown any signs that the news laws are a priority for enforcement activity.  All of that changed on 22 April 2013. 

The ACCC has sued Bytecraft (an ISP and internet services provider) in the Federal Court of Australia alleging that the company standard terms of contract for consumer internet services are unfair, cannot be enforced by the company and must be declared void.  The court case is the first enforcement action based exclusively on the new unfair rules and so is a case that will be followed by many with interest.

The law provides that a court may determine that a term of a standard form consumer contract is unfair and therefore void. Under the ACL, a ‘consumer contract’ is a contract for the supply of goods and services or the sale or grant of an interest in land, to an individual who acquires it wholly or predominately for personal, domestic or household use or consumption. In broad terms, a standard form contract will typically be one that has been prepared by one party and is not subject to negotiation – that is, it is offered on a ‘take it, or leave it’ basis.

A term of a consumer contract will be considered unfair if each of the following is present:

  1. it would cause a significant imbalance in the parties’ rights and obligations under the contract
  2. it is not reasonably necessary to protect the legitimate interest of a party to the contract
  3. it would cause detriment to a party to the contract if it is applied or relied upon.

In determining whether a term is unfair the court must take into account the extent to which the term is transparent, and the contract as a whole.

Whilst these rules do not apply to a contract to supply goods or services from one business to another for business use, they apply to all standard form contracts used for the sale of personal, domestic or household goods or services, irrespective of their value.

At the same time, the ACCC has undertaken a detailed review into standard form contracts used in the airline, telecommunications, fitness and vehicle rental industries, as well as some contracts commonly used by online traders. The Commission has concluded that are number of standard terms used in those industries are "unfair".  We can expect the ACCC to continue to focus on these issues, and to launch further prosecutions, given those findings.  It is highly likely that any business that is using standard consumer contract terms in the online environment, or in any of the industries studied by the Commission, will attract a high level of interest from the ACCC, and is likely to be a target.

It is clear that this issue is one that the Commission is focusing on, and that it will continue to monitor that market, engage with businesses to seek changes to terms the Commission considers unfair and, ultimately, take action to have the terms declared void. It is now timely for existing standard terms and conditions for individual access or use of a website, or for the provision (whether by sale, rental or otherwise) of any goods or services that are, or may be supplied to an individual wholly or predominately for personal, domestic or household use or consumption, to be reviewed, in light of the changed law, and, equally importantly, the recent Commission report.  This will ensure that, as far as possible, all of the terms of those agreements can be properly considered to be fair, and fully enforceable.   This simple pro-active step will significantly reduce the risk of significant dislocation and expense in dealing with an ACCC investigation or Court enforcement proceedings.

These reviews are something we have already undertaken for a number of clients in businesses likely to be targeted by the ACCC and that rely heavily, if not solely, on standard contract terms where there is little if any negotiation of the main contract terms.  In many of those businesses it is not feasible (or practical) to allow every purchaser a reasonable opportunity to negotiate the terms of the contract.  As a result, a different solution, so as to remove the risk of the terms being held to be unenforceable is needed.  We have developed an excellent understanding of the issues, and the ways to draft enforceable clauses that meet the ACL tests.

If you would like us to review and amend your existing terms so as to respond to this important issue, and ensure that you are confident that the terms will continue to be enforced, if necessary, please let me know. 

In the longer term, we will monitor the ACCC proceedings and let you know of any developments that may impact on standard consumer contract terms generally.  If you think it useful, we can also provide advice that is specific to an individual business's standard consumer contract terms.  As the matter has only recently started, we expect that it will be some time before anything meaningful can be gleaned from the case, but we will continue to keep our clients up to date.

In the meantime, as always, if you want to discuss any aspect of the matter, or have any particular questions, please let us know.


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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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