ACCC and Federal Court Take Action on Unfair Contract Terms

If you are a local business owner you should now take the time to consider whether the terms of your standard form contracts would be considered “unfair terms”. Standard form contracts are contracts prepared by businesses that are generally not subject to negotiation. If your standard form contract includes terms that are deemed “unfair terms” by the Australian Competition and Consumer Commission (ACCC) you will be in breach of the unfair contract terms provisions of the Australian Consumer Law. Previously, a breach of this kind would lead to you being investigated by the ACCC. The ACCC, however, are now moving towards an enforcement based approach.

In March of this year, the ACCC released a report on the review of unfair contract terms which identified a number of problematic terms used in standard form consumer contracts. Given that the Australian Consumer Laws unfair contract laws came into effect on 1 July 2010, the ACCC now considers that businesses have been given sufficient warning and are taking a strong stance against businesses that use unfair contract terms.

A copy of the report Unfair Contract Terms – Industry Review Outcomes can be obtained from the ACCC website www.accc.gov.au.

The report highlights a number of problematic contract terms including, for example:

• Contract terms that allow the business to change the contract without consent from the customer;
• Contract terms that unfairly restrict the customer’s right to terminate the contract;
• Contract terms that suspend or terminate the services being provided to the customer under the contract;
• Contract terms that make the customer liable for things outside of their control;
• Contract terms that prevent the customer from relying on representations made by the business.

Essentially, the terms of a standard form contract will be deemed unfair and consequently void if it causes a significant imbalance to the rights of the customer causing detriment to the customer if enforceable.

Since the release of this report, the ACCC has initiated its first action based exclusively on the unfair contract terms provisions of the Australian Consumer Law. The proceedings instituted by the ACCC against ByteCard Pty Limited (otherwise known as Netspeed Internet Communications) in the Federal Court illustrate the ACCC’s enforcement based approach. The ACCC alleged that the following provisions in ByteCard’s standard terms and conditions were unfair and prohibited by the Australian Consumer Law:

• Terms that enabled ByteCard to unilaterally vary the price under the existing contract without providing the customer with the right to terminate;
• Terms that required the customer to indemnify ByteCard in any circumstance;
• Terms that enabled ByteCard to unilaterally terminate the contract at any time with or without cause or reason.

The Court found that the terms were unfair on the basis that:

• They created a significant imbalance in the parties’ rights and obligations;
• They were not reasonably necessary to protect ByteCard’s legitimate interests;
• If applied or relied upon by ByteCard, they would cause detriment to a customer.

This proceeding marks a transition to a more enforcement-focused approach by the ACCC when dealing with unfair contract terms and indicates that it will be important for businesses that use standard form contracts, to review their provisions and ensure that such provisions are not considered unfair under the Australian Consumer Law. If businesses don’t take these steps they will be at risk of proceedings being instituted against them by the ACCC.

Should you wish to discuss this matter further, please contact our office.